Summer 2015 Budget… A Summary

Budget red boxWell the first all conservative budget is over and lots of changes as expected.

Although there is a lot of information and figures, we have taken the key information for our mortgage and protection customers and highlighted the impact of these to you here.

PLEASE NOTE: This snapshot is not intended as an in-depth analysis of the Chancellor’s speech (we will leave that to the press and experts) but we hope this brief summary helps you gain a quick grasp on the key points delivered by the Chancellor yesterday.

For full details of the following headlines (and more) you may wish to visit the HM Treasury website

The key points affecting mortgages, insurance and housing are as follows:

Insurance Premium Tax

This will be raised from 6% to 9.5% from November this year.  Any policies affected by this rise will be contacted by the provider in due course to advise of the rise and to confirm the new payments.

This is not a rise in premiums, just a rise in taxation and should affect around one fifth of all insurance bought in the UK.

Home Ownership

The chancellor reaffirmed that the government was committed to:

New Help to Buy Isa this Autumn

Giving Housing Association Tenants access to Right to Buy

Further planning reforms to be announced Friday 10th July

Buy to Let Mortgage Interest Relief

This will be restricted to basic rate tax only, meaning that higher rate tax payers will no longer receive tax relief at the higher rate.

This will be implemented over a 4 year period and will start in April 2017

Rent a Room relief

This has been set at £4,250 for the last 18 years.  Next year it will be raised to £7,500, a much more realistic figure in today’s economy.

Inheritance Tax on family homes

From 2017, an additional £175,000 allowance will be granted on top of the standard £325,000 threshold when you leave your own home to either your children or grandchildren.  For couples this means that from 2017 you can effectively leave a property worth £1 million to your family free of charge.

This is particularly welcome to those families that have owned their own home for many years and have seen it grow rapidly in value, especially in the London and South East of England.

However, for estates worth more than £2 million this relief will be tapered away, so the intention is to return inheritance tax payments back to the wealthier estates in society.

Housing Benefits

Mortgage Interest Support, will change from a benefit to a loan.  The timescale to make a claim will also change from 13 weeks to 39 weeks.

This is a major change in benefits and potentially impacts anyone who has a mortgage and is out of work through long term illness or redundancy.

In addition, social housing tenants earning more than £40,000 in London and £30,000 elsewhere will see their rents rise to market rates, rather than being subsidised as they currently are.

Social housing rents will reduce by 1% a year for the next 4 years as well.

Highlights of other changes in brief

Forecasts

  • Chancellor announces that this budget, a one nation budget, puts security first and is a budget for working people looking ahead to the next five years.
  • The Chancellor announced adjustments to previous growth forecasts from those previously announced in the 2015 March Budget.
    • Growth last year at 3% – up from 2.6%
    • Growth forecast for 2015 – revised down to 2.4%
    • Growth forecast for 2016 – unchanged at 2.3%
    • Growth forecast for 2017 – revised upwards to 2.4%
    • 1 million more jobs to be created over the next five years
    • OBR borrowing forecast revised down to £69.5 billion for 2015/16
    • OBR states national debt now decreased to 80.1% of GDP

Taxation/Welfare

  • New National Living Wage of £7.20 to be introduced in April 2016 (to reach £9.00 per hour by 2020 – compulsory for working people aged 25 and over)
  • £12billion in savings required through welfare changes
  • £5billion in savings through crackdown on tax evasion and avoidance
  • Corporation tax to be reduced to 19% in 2017 / 18% in 2020
  • Non-domiciled taxation status to be abolished from April 2017
  • Dividend tax credit to be replaced by £5,000 tax free allowance
  • Inheritance Tax  – up to £1million can be passed onto children without inheritance tax
    • This measure introduces an additional nil-rate band when a residence is passed on death to a direct descendant. This will be £100,000 in 2017 to 2018, £125,000 in 2018 to 2019, £150,000 in 2019 to 2020, and £175,000 in 2020 to 2021.
    • It will then increase in line with Consumer Price Index from 2021 to 2022 onwards. Any unused nil-rate band will be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.
  • NHS to receive a further £8billion over the next five years
  • Public Sector pay rises of 1% for the next four years
  • New youth obligation for 18-21 year olds to ‘earn or learn’
  • Automatic housing benefit abolished for 18-21 year olds
  • Rents in social housing sector reduced by 1% a year for next four years
  • All working parents with children age 3 & 4 to receive 30 hours of childcare per week
  • Working age benefits to be frozen for four years
  • Benefits cap to be reduced to £23,000 in London and £20,000 elsewhere
  • Threshold in tax credit to be reduced from £6,420 to £3,850
  • Tax credit and universal credit limited to two children after April 2017
  • Annual investment allowance set at £200,000
  • Personal tax allowance – increased to £11,000 from April 2016 (further rises in line with minimum wage)
  • Higher rate tax threshold – increased to £43,000 from April 2016
  • Disability benefits will not be taxed or means tested
  • Bank Levy to be reduced over the next 6 years / 8% surcharge on bank profits to be applied from January 2016
  • Insurance premium tax to be raised from November 2015 to 9.5%

Pensions / Savings

  • Green paper to be issued on reform of pensions

National Security

  • Real increase in defence budget guaranteed every year
  • Joint security fund of £1.5billion to be created by the end of Parliament
  • Commitment to meet NATO pledge of 2% of national income on defence

Housing

  • Mortgage interest relief restricted to basic rate of income tax
  • Reduced tax relief for buy-to-let landlords
  • Rent a room relief to be raised to £7,500 from 2016

Education

  • New apprenticeship levy on all large firms
  • To support Universities – From 2016/17 (academic year) maintenance grants to be replaced by loans for students. Loans only need to be repaid once the individual is earning over £21,000 per year.

Transport/Fuel/Energy

  • New car tax bands introduced for new cars from 2017
  • Vehicle Excise Duty: £140 per year for 95% of new cars from 2017
  • New roads fund will benefit from car tax payments
  • First MOT to be extended to 4 years from 3
  • Fuel duty to remain frozen this year
  • Climate change levy to be removed

Northern Powerhouse

  • Further powers to be devolved to Greater Manchester (option available to other cities)
  • £30million funding for Transport in the North
  • Various commitments to growing transport, industry and skills to create growth of Northern cities

Plus – Various other commitments and initiatives to be applied to Southern England, Scotland & Wales, more details to be released in the future.

I hope that this has provided a brief summary to you and covers the key points that affect our customers.

If there are points you want to discuss please feel free to contact me direct on 01278 453926 and I would be happy to discuss further.

Regards

Mark Davis

XL Financial Services Limited

How To Be A Happy Working Parent

Parents are the people who have photos in their wallets instead of cash. It’s an old joke but it often still gets at least a wry smile. No matter how much dads and mums might like the idea of being full-time parents, the reality is that bills still need to be paid and for most people that means at least one parent working. Fortunately there are ways to make this a generally happy experience.

Assess your employer

Beer and pizza on Fridays and a company games console may seem like great perks before you have children but after you have them childcare vouchers and company discounts at useful shops may seem more appealing. It may be that your employer does actually offer family-friendly benefits and you just never noticed them in your pre-child days. If they don’t then you could try having a conversation with your manager or HR to see if there is any appetite to introduce them. If there isn’t then there may be nothing to stop you looking for another employer who is better able to accommodate your family commitments.

Get on top of your finances

The arrival of a demanding newborn can overwhelm everything else in your life, but part of keeping that little baby happy, healthy, and safe is making sure that their financial needs are met for at least the next 16 years. If they go on to further education, then you can add another 5 or 6 years on to that.

Remember that not everything needs to be new

Making savings wherever you reasonably can reduces the demands on your income which may, in turn, give you greater flexibility in terms of your employment choices. While newspapers, magazines, the radio and the TV may all carry adverts aimed at convincing you that your baby needs the brand new product they are selling, it’s worth remembering that new items come at a premium because they are new. In some cases this may be justified. For example parents may feel much more comfortable knowing that safety equipment is brand new (and possibly under guarantee). In other cases, however, second hand may be just fine, particularly in the very early days when babies are growing at an incredible rate. Likewise opting for reusable items rather than disposable ones (nappies for example) can also help to save pennies and ultimately pounds. These savings can then be channelled into other activities such as investing for your child’s future or enjoying quality time with them in the present.

Keep on networking

Young children make huge demands on time as well as on money and it can be very easy to slip into the habit of working to pay the bills and then going home to be with the new family. While watching them grow up is one of the joys of parenthood, it’s worth remembering how much value there is in human networks, both professional and social. Take time to ensure that you still stay connected both to your friends and to your colleagues and wider professional circle. Even if you can’t get out to meet them in person as much as you’d like, or even not at all in the short term, make time to get online and catch up with people in cyberspace.