The Emergency Budget – HOLIDAY READING!
By: Anne Wilson
Tax advisors and MPs will have a little light holiday reading to enjoy following George Osborne’s emergency budget which will take place on 8th July. Having shaken off the Lib Dems, the government is keen to make its mark on tax policy as soon as possible.
What announcements can we expect based on the Conservative’s manifesto?
One promise was the introduction of a “tax lock” to prevent increases in VAT, National Insurance Contributions or Income Tax during the life of the parliament. Why does this commitment need to be legislated for; are politicians so untrustworthy as to break a promise!
The Personal Allowance and the Minimum Wage
The personal allowance will be increased so that by 2021 this will be £12,500. The personal allowance will be linked with the minimum wage so anyone earning the minimum wage and working for 30 hours a week should not pay any tax. This suggests that the minimum wage will be £8 an hour by 2021.
Higher Rate Band for Higher Income Only
Alongside these measures is the target to raise the basic rate band so that by the end of the parliament no one with income of less than £50,000 will pay tax at the higher rate. The basic rate band has been eroded over the years, in 1994/95 approximately 2m people were paying tax at the higher rate compared with 4.6m people now.
Transferable Inheritance Tax Relief
A new transferable inheritance tax relief will be introduced to enable a couple to pass an additional £175k each of value in their main residence to their children so that potentially they could leave £1m to their children without inheritance tax.
The relief tapers away where the estate is worth more than £2m. This seems likely to add fuel to the fire of the north/south debate as this is will be of far greater benefit to taxpayers in high property value areas.
For example a couple whose only asset is a property worth £1m could leave this to their children free of inheritance tax. Contrast this with a couple with a property worth £200k and investments worth £800k, their estate would suffer inheritance tax of £140k! It is unclear at present if the £175k is the top slice of the estate and how it will interact with the nil rate band.
Limit Pension Contribution Tax Relief for High Earners
There is also a proposal to limit tax relief for pension contributions for high earners. It is thought that relief will be restricted for those with incomes of between £150k and £210k with the current contribution limit of £40k tapering away so that the maximum someone with income of £210k can contribute to a pension scheme and claim tax relief on will be £10k.
The Child Benefit Anomoly
These are the manifesto pledges but we can expect to see other changes, it is possible that the child benefit high income withdrawal will be calculated by reference to a couple’s income. This will correct an anomaly, currently a couple with income of £49k each can still claim benefit whereas a couple with one earner who has income of £60k loses the allowance in full.
Capital Gains Tax
There are question marks over the top rate of Capital Gains Tax which was not included in the tax lock announced in the Queen’s speech. It would also be useful for businesses to know sooner rather than later what the annual investment allowance for capital allowances will be on 1 January 2016.
Up the Chancellors Sleeve
We shall have to wait and see what other surprises the Chancellor has in store.