George Osborne revealed the first Budget of the government, including policy changes on everything from pensions and inheritance tax to bank levies and the Northern Powerhouse. Here we round up all the essential points from the Red Box.
1. A surplus will be reached by 2019
Osborne pledged to reduce the deficit by one per cent of GDP, resulting in a surplus being reached by 2-19/20.
Tax relief for buy-to-let landlords will drop from current levels (40 or 45 per cent) to 20 per cent from April 2020.
In addition, from April 2016, the ‘wear and tear allowance’, which allows landlords to reduce the tax they pay (regardless of whether they replace furnishings in their property) will also be replaced by a new system that only allows them to get tax relief when they replace furnishings.
The money brought in from road tax in England will be spent on England’s roads from 2020.
Permanent non-dom status will be abolished from April 2017. From that date, anyone who’s been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes.
A trio of measures here, including the introduction of an eight per cent tax on profits from January 2016, coinciding with a phased reduction on the bank levy charged on balance sheets from 0.21 per cent to 0.1 per cent by 2021.
The government will also exclude UK banks’ overseas subsidiaries from the bank levy from January 2021
5. More tax-free earnings
The tax-free personal allowance – how much people can earn before they start paying income tax – will be increased from £10,600 in 2015-16 to £11,000 in April 2016.
Osborne also wants that to increase to £12,500 by 2020, by which time he aims to exempt people working 30 hours a week on the minimum wage from paying income tax at all.
6. 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.
“This simpler system will mean that only those with significant dividend income will pay more tax,” Osborne said. “Investors with modest income from shares will see either a tax cut or no change in the amount of tax they owe.”
From April 2017, individuals will be offered a family home allowance, so they can pass on their main property to children or grandchildren tax free after their death.
Currently, inheritance tax is charged at 40 per cent on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another.
The family home allowance will be added to the existing £325,000 inheritance tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1m in 2020-21.
The allowance will be gradually withdrawn for estates worth more than £2m
8. Pensions reforms
Most people can contribute up to £40,000 a year to their pension tax-free. From April 2016, this amount will be reduced for individuals with incomes of over £150,000, including pension contributions.
9. Tax threshold raised
The higher rate tax threshold of 40 per cent will increase from £42,385 in 2015-16 to £43,000 in 2016-17.
10. Corporation tax cut
Corporation tax is being dropped down steadily from 20 per cent to 19 per cent in 2017, and then to 18 per cent in 2020, benefiting over a million businesses.
11. The annual investment allowance raised to permanent high
The annual investment allowance, which has previously been increased temporarily, will be set permanently at £200,000 from January 2016.
The allowance means businesses can deduct the full value of certain items, including equipment and machinery, up to a total value of £200,000 from their profits before tax. This helps them with cash flow because it means the full tax relief is given in the year items are purchased, rather than over several years.
12. The standard rate of insurance premium tax will increase to 9.5 per cent
From November 2015 the standard rate of insurance premium tax will be increased from six per cent to 9.5 per cent. Households’ insurance prices are falling and the standard rate remains lower than that of many other EU countries.
Cities and counties in the north will be given even more control over local transport, and will have more responsibility for setting out policy and investments.
14. 30 hours of free childcare for three and four year-olds
From September 2017, working families with three and four year-olds will receive 30 hours of free childcare – an increase from the 15 hours they’re currently offered.
15. Making sure individuals and businesses pay what they owe
HMRC will be given increased investment to clamp down on tax evasion and non-compliance, which will help it to triple the number of criminal investigations it can carry out “concentrating on wealthy individuals and companies”
HMRC will be given greater access to data looking at businesses that aren't declaring or paying tax.
Osborne also renewed his pledge to ensure international companies pay tax on profits diverted from the UK.
A ‘general anti-abuse rule’ penalty and tough new measures for serial avoiders, including publishing the names of people who repeatedly use failed tax avoidance schemes, is also being introduced.
16. Protecting defence spending
The Ministry of Defence’s budget will rise by 0.5 per cent (above inflation) each year to 2020-21.
The government will meet the Nato pledge to spend two per cent of national income on defence every year of this decade.
17. Reforming the welfare system to make it more affordable
Changes include freezing working-age benefits, including tax credits and local housing allowance, for four years from 2016-17 – this doesn’t include Maternity Allowance, maternity pay, paternity pay and sick pay.
The household benefit cap will be reduced to £20,000, or £23,000 in London.
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 6 months after the start of their claim
Rents for social housing will be reduced by one per cent a year for 4 years, and tenants on higher incomes (over £40,000 in London and over £30,000 outside London) will be required to pay market rate, or near market rate.
18. The employment allowance will increase from £2,000 to £3,000.
This reduces the amount of national insurance paid by businesses.
19. Clamping down on cold calls
The amount that can be charged by claims management companies – such as those that encourage claims for payment protection insurance (PPI) or personal injury insurance – will be capped, reducing nuisance calls to potential customers.
20. Introducing a new national living wage of more than £9 an hour by 2020
From April 2016, a new national living wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020.
Three million new apprenticeships will be created by 2020, funded by a levy on large employers. Firms that are committed to training will be able to get back more than they put in.
22. Student maintenance grants will be replaced with loans
From the 2016-17 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. Loans will be paid back only when graduates earn above £21,000 a year.
23. Road tax reformed
From 2017, there will be a flat rate of £140 for most new cars bought, except in the first year when tax will remain linked to the CO2 emissions that cars produce. The money brought in from road tax in England will be spent on England’s roads from 2020.
Electric cars won’t pay any road tax at all and the most expensive cars will pay more.
Existing cars won’t be affected – no one will pay more for a car that they already own.
24. Public sector pay will increase by one per cent
Public sector pay will increase by one per cent a year for four years from 2016-17.