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This is a Budget
that puts security first. It ensures economic security for working people by
putting the public finances in order and setting out a bold plan for a more
productive, balanced economy. It supports national security by investment in
defence. It sets out bold reforms on tax and welfare, and introduces a National
Living Wage so we move Britain from a low wage, high tax, high welfare economy
to a higher wage, lower tax, lower welfare economy. It delivers on the promises
on which the government was elected.
This Budget sets
out the action the government will take to:
Eliminate the deficit and run an overall surplus to start paying down debt, while increasing spending on defence and the NHS.
Reward work and back aspiration, by introducing a new National Living Wage, cutting taxes so people can keep more of what they earn, and reforming the welfare system to make it more affordable and fair to the taxpayers who pay for it.
Back business and make the economy more productive, by cutting corporation tax and increasing the permanent level of the Annual Investment Allowance, and by undertaking major reform of funding for skills and infrastructure to ensure higher standards of living for everyone in the UK .
Secure a truly national recovery, by devolving powers and budgets to build a Northern Powerhouse, and create the right conditions for strong growth throughout the UK.
Here are the key announcements
made by George Osborne in the summer Budget (8 July):
1) New national living wage
From April 2016, a new national
living wage of £7.20 an hour for those over 25 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.
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