WELL THERE WE HAVE IT THE FIRST EVER SUMMER BUDGET! I SEEM TO BE WRITING ABOUT BUDGETS FAR TOO OFTEN SO I WILL GET THROUGH THE MAIN POINTS, MAKE SOME COMMENT THEN I AM DEFINITELY NOT GOING TO WRITE ABOUT THE GOVERNMENT FOR A WHILE.
There are 2 themes I want to touch on, the specifics that affect our clients directly and wider economic issues.In terms of specifics we have 3 key areas, all of which are tinkering with existing legislation and making things more complicated.Dividend TaxThe Chancellor has scrapped the 10% tax credit on dividends meaning that there is going to be a substantial tax increase on dividends for higher rate and additional rate tax payers from 2016.No dividend tax is now going to be charged on the first £5000, 7.5% for basic rate tax payers, 32.5% for higher rate and 38.1% for additional rate tax payer.
This is because the old scheme was “archaic”??
Probably the worst kept secret of the budget was the raising of the Nil Rate Band (NRB) to £1m for couples. This is not all it seems.
Each individual will get an additional £175,000 NRB where the family property is involved and being left to the next generation.
This means for a married couple there is a potential for a £1m property to be free of Inheritance Tax (IHT), but all other assets would be still be liable for 40% tax without proper planning.
In most circumstances the family home will be a taxable part of the estate and the current NRB for couples of £650,000 will cover the majority of properties in Scotland, particularly when the trend is to downsize in later years so the additional rate is unlikely to be of major benefit to much of the population.
Pension Tax Relief
So that was all the easy stuff. The really complicated part is the changes to pensions tax relief for high earners.
I mentioned this in last weeks blog and for once I got something right!!!!!
The annual allowance will be tapered down from £40,000 to £10,000 p.a on those earning £150,000 or more at a rate of £1 for every £2 of income.
This is alongside the reduction of the Lifetime Allowance to £1m from 2016.
All of these changes will require further qualification when we get the full details.
Wider Economic Issues
There has been well publicised cuts to public services, social security and freezing of certain benefits which is undoubtedly going to leave low income families with some serious problems which are not going to be addressed by the promise to raise the minimum wage.
Even the Institute for Fiscal Studies is predicting 13 million families are going to be worse off as a result of these changes.
This is unlikely to improve the tax take which is what the government needs if it is going to reach any of its deficit reduction targets, which it has missed to date.
It would have been good to see more measures aimed at boosting economic growth, particularly with the issues in the Eurozone likely to impact on the economy in the short term.
We will be keeping a close eye on what happens over the comings months and as always will keep you posted.
Its always good to get your views on these matter so feel free to get in touch.
This email is not intended as advice as should not be treated as such.