Summer Budget 2015: All the key announcements

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Summer Budget 2015: All the key announcements

The family home was taken out of inheritance tax, permanent non-dom status was axed and the welfare system faced yet more cuts were some of the key points that came out of today’s (8 July) summer Budget.

Here are the key announcements made by George Osborne in the summer Budget today (8 July):

1) New national living wage.

From April 2016, a new national living wage of £7.20 an hour for the over 25s will be introduced. This will increase to more than £9 an hour by 2020.

2) Tax-free personal allowance increased.

The tax-free personal allowance – the amount people earn before they have to start paying income tax – will increase to £11,000 in 2016 to 2017.

The government has an ambition to increase the personal allowance to £12,500 by 2020, and a law will be introduced so that once it reaches this level, people working 30 hours a week on the national minimum wage won’t pay income tax at all.

3) Welfare system cuts.

Working-age benefits, including tax credits and local housing allowance, will be frozen for four years from 2016 to 2017, however this excludes maternity allowance, maternity pay, paternity pay and sick pay.

As speculated, the household benefit cap will be reduced to £20,000 across the country and £23,000 in London.

Support through the child tax credit will be limited to two children for children born from April 2017.

Those aged 18 to 21 who are on universal credit will have to apply for an apprenticeship or traineeship, gain work-based skills, or go on a work placement six months after the start of their claim.

Rents for social housing will also be reduced by 1 per cent a year for four years.

4) Reforming dividend tax.

The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016.

Tax rates on dividend income will be increased.

5) Family home taken out of inheritance tax.

Currently, inheritance tax is charged at 40 per cent on estates over the tax-free allowance of £325,000 per person. From April 2017, couples will be offered a £1m family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017 to 2018.

The allowance will be gradually withdrawn for estates worth more than £2m.

6) Limits to paying into pensions.

The amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced so that for every £2 of income they have in excess of £150,000, then their annual allowance is reduced by £1. Most people can contribute up to £40,000 a year to their pension tax-free.

7) Higher rate threshold will increase.

The amount people will have to earn before they pay tax at 40 per cent will increase from £42,385 in 2015 to 2016 to £43,000 in 2016 to 2017.

8) Corporation tax will be cut.

The main rate of corporation tax has already been cut from 28 per cent in 2010 to 20 per cent, in order to boost UK competitiveness but will fall further to 19 per cent in 2017, and then to 18 per cent in 2020.

9) Annual investment allowance will be increased.

The annual investment allowance, which has previously been increased temporarily, will be set permanently at £200,000 from January 2016.

10) Employment allowance will increase.

Businesses will have their employer national insurance bill cut by another £1,000 from April 2016, as the employment allowance rises from £2,000 to £3,000.

11) Insurance premium tax will increase.

From November 2015 the standard rate of insurance premium tax will be increased from 6 per cent to 9.5 per cent.

12) Clamping down on claims management companies.

The amount that can be charged by claims management companies – such as those that encourage claims for payment protection insurance or personal injury insurance – will be capped.

13) Restricting tax relief for wealthier landlords.

Currently, individual landlords can deduct their costs – including mortgage interest – from their profits before they pay tax.

Wealthier landlords receive tax relief at 40 per cent and 45 per cent. This tax relief will be restricted to 20 per cent for all individuals by April 2020.

14) Ending permanent non-dom status.

Non-domiciled individuals live in the UK but consider their permanent home to be elsewhere.

The UK rules allow non-doms to pay UK tax on their offshore income only when they bring it into the UK. However, permanent non-dom status will be abolished from April 2017.

From that date, anyone who has been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes.

15) Changing the way banks are taxed.

Following increasing bank profits, and to reflect changes in bank regulation, the government is introducing a new 8 per cent tax on banking sector profits from January 2016.

The government is also introducing a phased reduction in the rate of the bank levy (which is charged on banks’ balance sheets) from 0.21 per cent to 0.1 per cent between 2016 and 2021.

16) Student maintenance grants will be replaced with loans.

From the 2016 to2 017 academic year, cash support for new students will increase by £766 to £8,200 a year, the highest level ever for students from low-income households.

New maintenance loan support will replace student grants.

17) Road tax reform.

The road tax system will be revised to make it fairer and sustainable.

From 2017, there will be a flat rate road tax of £140 for most cars, except in the first year when tax will remain linked to the CO2 emissions that cars produce. Electric cars won’t pay any road tax at all and the most expensive cars will pay more.

emma.hughes@ft.com