A week or so later, what have emerged as the most significant announcements of the Conservatives’ summer Budget?
We have already looked at the Innovative Finance ISA, which will cover P2P loans such as those made by Zopa customers from next April. But elsewhere, a number of changes – some small and some large – were made to the UK’s tax regime.
Tax credit reforms
The tax credit system that is relied upon by millions of families is being dramatically scaled back. From next April, the income level at which tax credit can be claimed is being reduced from £6,240 to £3,850. And any third children born after April 2017 will not be eligible for child tax credit.
Research published after the Budget by the Institute for Fiscal Studies found that the reforms are likely to mean annual losses of £1,000 on average for around three million families.
National living wage
To offset benefit changes, the Government is introducing a national living wage from next year. This will replace the minimum wage for workers aged 25 and over, and will start at £7.20 an hour in April 2016 and rise to £9 by 2020. At present, the minimum wage is set at £6.50.
There is also a faster-than-planned increase in the personal allowance for income tax: this will rise to £11,000 next April, while there will also be an increase in the starting level for the 40% higher-rate tax band, from £42,385 to £43,000.
As predicted prior to the Budget, the inheritance tax threshold will be effectively raised to £1 million for couples who pass on homes to their direct heirs – this is an increase on the current £650,000 level.
Landlords are however unlikely to welcome restrictions on the tax relief they can claim on mortgage interest payments. At present, interest on buy-to-let mortgages can be offset against income when working out income tax – so higher-rate and top-rate taxpayers get relief at 40% and 45% respectively. From 2017, this will be restricted to 20%, although the change will be phased in over several years.
A continuation of the freeze on fuel duty until the end of this year at least was widely welcomed. Osborne also announced an overhaul of the road tax or vehicle excise duty (VED) system.
From 2017, newly registered vehicles will not get such great incentives for having low carbon dioxide emissions, and only zero-emission cars (such as plug-in electric vehicles) will be VED-free. Under the current system, cars with relatively low emissions pay little or nothing in VED – and as new models become increasingly environmentally-friendly, the Treasury’s revenues from this tax have been dwindling.
The changes will not apply to vehicles that are registered before April 2017, however: they will continue to be taxed under the current system.