Five things: Summer Budget

Five things: Summer Budget

Chancellor George Osborne announced the first all Conservative Budget since 1996, furthering his aim to make Britain a “lower tax, lower welfare” society.

The Conservative government is aiming to reduce the deficit at the same pace as during the last parliament, projecting to come into a surplus by 2019/2020. This comes as the debt crisis in Greece accelerates, highlighting the importance of controlling government finances before they get out of hand.

“Britain still spends too much, and still borrows too much,” Mr Osborne said, “We seek to create a country that can fully pay its way.”

Article continues after advert

To do so, he has focused Government policy on making cuts to spending and changes to some types of tax relief, such as IHT and pensions.

Some may say it is prudent policy, others may call it it austerity. Regardless, here are five things you need to know about the Summer Budget.

1. Did he mess around with pensions again?

Of course he did, it is a Budget after all. This time Mr Osborne pledged to cut the tax relief available for high earners. Those making £150,000 per year or more will no longer qualify for the annual allowance of £40,000. Instead, the annual allowance will reduce by 50p for every £1 of earnings over £150,000, down to a £10,000 allowance. This is in addition to the lifetime allowance cuts made in the March Budget from £1.25m to £1m.

2. Any idea where this money is going to go?

Savings made from the reduction in pension tax relief for high earners will help fund an increase in IHT allowance on family homes. In line with the Conservative Party’s manifesto prior to the election, the IHT threshold, will beset at £325,000 until 2021 but an additional £175,000 will be added to the allowance to cover family homes. This £500,000 total applies to individuals so couples will typically enjoy a £1m allowance.

3. Anything else I should know about tax?

The non-domiciled (non-dom) tax status was abolished, so those resident in the UK for more than 15 of the previous 20 years will now have to pay UK taxes in full. Ed Miliband was the first to draw attention to this policy during his general election campaign and since then most of the other political parties have followed suit. This is a part of Osborne’s crackdown on tax avoidance in general, more details of which will come in time, but there will likely be greater power given to HMRC to track down offshore tax avoiders.

Also, the amount that landlords can claim as tax relief on mortgage interest will be gradually lowered over four years from April 2017 from 45 per cent now to 20 per cent. This move from the top level of tax to the basic rate will “level the playing field for homebuyers and investors”, according to Mr Osborne. Current levels of mortgage tax relief are estimated to cost £6.3bn per year.