1. Inheritance tax threshold rise to £1m
Not entirely unexpected, the Chancellor has announced he will cut inheritance tax (IHT) so that couples can pass on a family home worth up to £1m without paying inheritance tax. Currently, inheritance tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another.
47% of people said IHT is the most unfair tax
George Osborne said inheritance tax was a tax designed for the very rich yet more families find themselves drawn into the tax net than ever before. He also commented: “A wish to pass something onto your children is about the most basic and natural aspiration there is.” Just under half of people (47%) recently polled by NFM Mututal said IHT is the most unfair tax.
Expert verdict: Dean Mirfin from over 55s specialist Key Retirement said: "This news will be very welcome to the majority of pensioners who have invested heavily in their homes for a great many years. This move will enable many retirees to more effectively plan their estates and to secure greater protection for what for many is their most valuable, or only real, asset. Following the changes to death benefits held in pension assets, this makes effective estate planning more straight forward, however it will still require appropriate advice and planning both in terms of the IHT itself and also in ensuring that wills and power of attorney are in place to ensure that wishes are carried out to the full."
And Nicki Whittaker at NFU Mutual says he expects there to be a rush to revalue properties as parents and grandparents look to hand down as much as they can to their families.
2. Rent-a-room threshold rise
If you want to rent out room in your home you won’t pay tax on the first £7,500 from next year. The rent-a-room threshold has remained unchanged at £4,350 for 18 years.
Expert verdict: Matt Hutchinson at SpareRoom.co.uk, says: “This change to the Rent-A-Room scheme has potentially huge implications for the scarce supply of affordable rented accommodation.
“In the midst of a housing crisis, and with building levels behind all forecasted targets, it’s vital we make better use of existing stock and this will do just that. All too often housing initiatives benefit a select few - but this helps millions of renters and homeowners.”
Lodger landlords can earn, on average, £8,335 per year in London, and £6,071 across the rest of the UK, according to SpareRoom.
3. New National Living Wage to be introduced
From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020.
4. Income tax changes
- The tax-free Personal Allowance – the amount you can earn before you have to start paying Income Tax – will increase to £11,000 in 2016-17. The government aims 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.
- The higher-rate income tax threshold will rise from £42,385 to £43,000 from next year, lifting 130,000 people out of the higher rate.
Expert verdict: Maike Currie at Fidelity Personal Investment said: “Of course our income tax bands are only a small part of the story. Most of us also pay National Insurance contributions which is another tax on income – this means that our marginal tax rates are much higher once National Insurance contributions kick-in. There was no word from the Chancellor on abolishing this misleading distinction.”
5. Welfare system reforms
The chancellor said the welfare system will be reformed to "make it fairer for taxpayers who pay for it, while continuing to support the most vulnerable." Changes include:
- 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)
- The household benefit cap will be reduced to £20,000 (£23,000 in London)
- Support through Child Tax Credit will be limited to 2 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 6 months after the start of their claim
- 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.
6. Pension annual allowance curbs for larger income earners
Most people can contribute up to £40,000 a year to their pension tax-free. From April 2016, this amount will be reduced for individuals with incomes of over £150,000, including pension contributions.
Expert verdict: Dean Mirfin at Key Retirement said: "The change in the annual pension contribution limit for those with incomes over £150,000 may seem trivial but older workers who are trying to fund their pensions in the lead up to retirement, who have good levels of income, will be punished at a time when they should be encouraged to contribute as much as possible."
7. Clamp down on claims management companies' nuisance calls
The amount that can be charged by claims management companies – such as those that encourage claims for payment protection insurance (PPI) or personal injury insurance – will be capped, reducing nuisance calls to potential customers.
Expert verdict: Huw Evans at the Association of British Insurers said: “Poorly regulated Claims Management Companies have been hiking up the cost of insurance for far too long. The government is right to tackle this aggressively and ensure the system rewards customers who behave truthfully.”
8. Increased hours of free childcare
From September 2017, working families with three and four year old children will receive 30 hours of free childcare – an increase from the 15 hours they’re currently offered.
9. New student maintenance loans
From the 2016-17 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, says the government. New maintenance loan support will replace student grants. Loans will be paid back only when graduates earn above £21,000 a year.
10. Road tax reforms
The road tax system will be revised to make it fairer and sustainable. From 2017, there will be a flat rate 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.
Existing cars won’t be affected – no one will pay more for a car that they already own. The money brought in from road tax in England will be spent improving England’s roads from 2020 which the Chancellor says are "simply not up to scratch".
The first MOT on new cars and motorcycles will be now be after four years (previously three). Fuel duty has again been frozen in a welcome boost to motorists.
11. Increase in Insurance Premium Tax
This tax is levied on general insurance premiums and the Chancellor has proposed an increase from 6% to 9.5%.
Expert verdict: Kevin Pratt at Moneysupermarket.com says: "For drivers and households across the country, it's important to note that the taxation you pay on home and car insurance premiums will rocket by almost 60 per cent from November, adding £35 to insurance bills for the average two-car family.
“While we have all been benefitting from declining costs for car and home insurance premiums over the last few years, this tax increase may now sadly negate those benefits. It hammers home the need to shop around for the best deal to help alleviate financial pressure on your household finances."
- The NHS will receive a further £8bn a year by 2020 to ensure a 'strong seven day a week NHS'
- BBC to take on cost of free TV licences for over-75s
- Public sector pay will increase by 1% a year for 4 years from 2016-17
- The government will continue to clamp down on tax avoidance, planning and evasion
- Big incentives for companies to take on more apprentices - 3 million new apprenticeships will be created by 2020
- Permanent non-domiciled (non-dom) status will be abolished from April 2017. From that date, anyone who’s been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes
- A Green Paper consultation on a new ISA-style of pension
- Power to set Sunday trading hours devolved to councils and mayors in England
- Tax relief on mortgage interest payments for buy-to-let landlords will be restricted to the basic rate of tax, phased in over four years from April 2017.