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George Osborne delivered his seventh Budget on Wednesday 8 July 2015.
Here's our summary of the changes:
The government will abolish the Dividend Tax Credit from April 2016 and introduce a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Increase in the Inheritance Tax threshold
As widely heralded, an inheritance tax threshold for a family home will be introduced from 6 April 2017.
A family home allowance of £100,000 from 2017/18 (rising to £175,000 in 2020/21) will be added to the standard individual threshold of £325,000, eventually raising the threshold to £500,000 where a family home is being passed on. There is no inheritance tax on transfers to spouses or civil partners, so no inheritance tax applies on death where assets are passed on to the surviving spouse/civil partner. The ‘unused’ inheritance tax threshold on that first death can be passed on to the survivor, thereby doubling the threshold available on their death. Properties worth up to £1 million (from 2020/21) could therefore be passed on to children without inheritance tax being due on the property.
Reduction in annual allowance
Again as predicted, the annual allowance for those with taxable income over £150,000 will reduce by £1 for each £2 of income over £150,000, with a maximum reduction down to £10,000. A £10,000 annual allowance will therefore apply to all taxable incomes over £210,000. This will apply from 6 April 2016.
In advance of the introduction of this tapered annual allowance, transitional rules have been introduced immediately to align all pension input periods with the tax year. Savings already made will be protected from retrospective tax charges.
Taxation of lump sums death benefits
Currently where someone dies aged 75 or over, tax on lump sum death benefits is 45% for deaths before 5 April 2016.
The Budget confirms that for deaths after 5 April 2016, tax on these lump sums will be at the recipient’s marginal rate of tax. Where the recipient is a trust or company and so doesn’t have a marginal rate, the 45% charge will continue to apply.
The Chancellor confirmed that the lifetime allowance will reduce from £1.25 million to £1 million from 6 April 2016. Transitional protection will be introduced to ensure the change is not retrospective.
The government will reduce the corporation tax rate from 20% to 19% in 2017 and 18% in 2020.
Published 8 July 2015
The information provided is based on our current understanding of the Summer Budget 2015 and associated documents and may be subject to alteration as a result of changes in legislation or practice.
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