General Updates

The 2015 Budget, round two – headlines and summary.

In this, his second budget of 2015, the Chancellor delivered a mixed bag of cuts, rises and changes to tax rates alongside a raft of welfare benefit reforms. Here, we present a summary of the main points.


The Office for Budget Responsibility has reduced its economic growth forecast for 2015 from 2.5% to 2.4%. The forecast for 2016 is unchanged, but there is a rise in the predicted rate of growth – from 2.3% to 2.4% – for each year from 2017 to 2020.

The OBR predicts that the budget deficit will fall to 2.2% of GDP in 2016-17 and continue to fall thereafter, eventually becoming a surplus of 0.4% in 2019-20 and 0.5% the following year. In monetary terms, this would mean that there would be a deficit of £69.5 billion for 2015-16 changing to a surplus of £11.6 billion for 2020-21.

The OBR anticipates that another 1 million jobs will be created over the next 5 years. This, they say, should be matched by a rise in wages. They expect average annual wage rises to increase from 2.2% this year to 4.4% in 2020.

Against this backdrop, the Chancellor announced a variety of reforms to personal and corporate taxation.


Income Tax rates Legislation will be introduced in the next few weeks in order to put a lock on the current main rates of income tax, VAT and national insurance for the next 5 years.

The threshold at which an individual becomes liable to pay basic rate income tax will increase to £11,000 for the 2016-17 tax year, and the threshold for the 40% income tax rate will rise to £43,000 in 2016-17.

Non-domiciled status

Permanent non-domiciled status has been abolished. From April, 2017, anyone who has lived in the UK for 15 of the preceding 20 years will lose their right to claim non-domiciled status, thereby rendering them liable to pay UK tax on foreign earnings.

National Living Wage

A National Living Wage, which employers will be obliged to pay to employees aged 25 and over, will be introduced from April, 2016. The initial rate of the National Living Wage will be £7.20 per hour, rising to £9.00 an hour in 2020.


From April, 2016, people earning more than £150,000 per annum will have their tax-free contributions allowance reduced on a sliding scale from its current flat rate of £40,000 to a minimum of £10,000.

Inheritance Tax

The government will, as previously announced, add a ‘family home allowance’ for homeowners to the existing £325,000 tax-free allowance. The allowance will be introduced in 2017 at an initial level of £100,000 per person. It will thereafter rise by £25,000 each year until it reaches a maximum level of £175,000 per person in 2020.

The effect of this move will enable homeowners to pass on assets which include a home and are worth between £425,000 (in 2017) and £500,000 (in 2020) to their children or grandchildren without IHT being payable on that amount. As married couples and civil partners can pass the allowance to each other, the tax-free amount can therefore be doubled on the death of the second spouse or civil partner.

However, the allowance will decrease to zero on a sliding scale for estates worth more than £2m.


Insurance Premium Tax

This will rise from 6% to 9.5% with effect from 1st November, 2015.

Fuel duty

This remains unchanged.

Vehicle Excise Duty

The rates of vehicle excise duties are to change significantly for cars registered on or after 2017. There is no change in VED rates for cars registered prior to that date.


Corporation Tax

Corporation Tax will be cut to 19% in 2017 and further reduced to 18% in 2020.

Annual Investment Allowance

The annual investment allowance will be reduced to £200,000 with effect from 1st January, 2016.

National Insurance Contributions

The National Insurance employment allowance for small firms is to be increased by 50% to £3000 from 2016.

Dividend Tax Credit

The dividend tax credit is to be replaced with a new tax-free allowance of £5000 on dividend income. With effect from tax year 2016-17, the rates of dividend tax will be 7.5%, 32.5% and 38.1%.

Climate Change Levy

The Climate Change Levy exemption for renewable energy is to be removed.


Buy-to-let mortgages

People who have taken out buy-to-let mortgages will only be able to claim basic rate tax relief on mortgage interest payable by them with effect from 2020. Between 2017 and 2020, the maximum rate at which they can claim tax relief will be reduced each year.

Rent-a-room scheme

With effect from tax year 2016-17, people will now be able to earn up to £7500 per annum tax -free from letting out furnished accommodation in their home. The current tax-free threshold is £4250 per


No comments for “The 2015 Budget, round two – headlines and summary.”

Post a comment