Major changes to those on benefits were a feature of this additional 2015 budget. The Chancellor scrapped student grants, froze benefits and cut billions from tax credits and benefit payments. This will be a particularly harsh budget for young people as they will lose benefits, student grants, etc. Below are the main changes announced today, most of which will come into effect in 2016.
How the new budget affects you
Income Tax Changes
- The Personal Tax Free Allowance will increase in April 2016 from £10,600 to £11,000.
- The figure at which you will cross into 40% tax territory has increased to £43,000. In 2015/16 it was £42,385.
New National Living Wage
The minimum wage has been re-branded the National Living Wage, and given a pay rise! From April 2016 it will be £7.20 an hour, rising to £9 by 2020. It will apply to over 25's only.
Changes to Welfare/Tax Credits/ Benefits
- Working-age benefits, including tax credits and Local Housing Allowance, will be frozen for 4 years from 2016-17 (this doesn’t include Maternity Allowance, maternity pay, paternity pay and sick pay)
- Child Tax Credit will be limited to 2 children for children born from April 2017 (with exceptions for multiple birth situations).
- 18 to 21 year old's on Universal Credit will have to apply for an apprenticeship or trainee placement, gain work-based skills, or go on a work placement 6 months after the start of their claim.
- Household benefit cap will be reduced to £20,000 (£23,000 in London)
- Rents for social housing will be reduced by 1% 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, rents
- Free TV Licence for the over 75's
From September 2017, working families with 3 and 4 year olds will receive 30 hours of free childcare – an increase from the 15 hours they’re currently offered.
The amount a couple can pass on tax free will rise from £650,000 to £1m, by 2017. The present allowance is £325,000 per person. This will be increased by £175,000 per person from April 2017, bringing the amount to £500,000. So for a couple this will mean a combined total of £1m in inheritance that can be passed on tax free.
This allowance will be gradually removed from estates with a value of over £2m.
If you earn less than £150,000 per annum then your Annual Pension Allowance remains unchanged next year- £40,000. There has been a pretty drastic change to the ever decreasing Annual Pension Contribution Allowance for those earning over £150,000 a year. From April 2016 this will drop gradually to £10,000 per annum. For every £1 of earnings over £150,000, the annual allowance will reduce by 50p so that those earning £210,000 and above would have an allowance of £10,000.
Changes for the young and students:
The message from the Conservative Government to the youth of the United Kingdom has been very clear: "They must either earn or learn". The under 25's will be disappointed with some of today's announcements and how they will affect their pocket.
- Those aged between 18-21 will no longer have automatic entitlement to housing benefit, with exceptions only for the most vulnerable.
- 18 to 21 year olds on Universal Credit will have to apply for an apprenticeship or trainee position, gain work-based skills, or go on a work placement 6 months after the start of their claim.
- Student Grants have been abolished, instead being replaced by Student Loans, further increasing the debt burden of students. The grant of up to £3,387 a year had been available to those from lower income families. Due to the changes announced today, these grants will be switched for loans, to be repaid under the same terms as tuition fee loans once a graduate earns over £21,000 a year, saving the government £2.5bn by 2020-21. The maximum value of the maintenance loan will be increased to £8,200, but graduates will have to pay it all back.
- The new National Living Wage being introduced next year at £7.20, rising to £9 by 2020, will only apply to over-25s.
Changes relevant to Contractors/Employers/Companies/Businesses
- Corporation tax will reduce to 19% in 2017 and to 18% by 2020.
- 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. Those with significant dividend income will pay more tax.
- This Annual Allowance will be set permanently at £200,000 from January 2016. 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.
- The Employment Allowance will increase from £2,000 to £3,000 next year, meaning businesses will be able to employ 4 people full time on the National Living Wage and pay no National Insurance.
Other changes announced.
Mortgage Interest relief for landlords to be restricted to basic rate of income tax. This will will be reduced in a "proportional and gradual way" according to Osborne. Higher- rate relief will start to be withdrawn over four years, starting in 2017.
Ending of Non Dom Status
From April 2017, anyone who’s been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes.
Road Tax Reform/MOT
- Reform to Vehicle Excise Duties to pay for a new road-building and maintenance fund. New vehicle excise duty (VED) bands will apply from 2017 for new cars. There will be three bands: zero, standard and premium. The standard cost will be £140. Existing cars won’t be affected
- New cars and motorbikes will not need MOTs for the first four years, rather than three.