Budget Summary
Summer 2015

Introduction

One of George Osborne’s first acts as Chancellor was to establish an Office of Tax Simplification. That organisation has spent the last five years identifying needless complexity in the tax system and recommending changes to make dealing with tax less taxing. Sadly, whatever the OTS does to reduce complications, the Chancellor seems to replace with more. Few expected the July Budget to be so full of far-reaching measures that over the next few years will significantly change the way tax is calculated.

We were promised, of course, the 'tax lock' – a law to prevent the Government putting up the rates of income tax, National Insurance and VAT, or extending the scope of VAT. But there are more ways to increase taxes than just putting up the headline rates. A significant reform of the taxation of dividend income next year will affect those who have been able to extract profits from their personal company in a tax-efficient way. The reduction of income tax relief on mortgage interest will put up the tax charges for buy-to-let landlords from April 2017. Restricting the tax advantages of people who are currently classified as 'foreign domiciled' is another potential tax-raising measure, but it is not clear whether wealthy international people will pay more tax or will move elsewhere.

As expected, Mr Osborne announced a new Inheritance Tax allowance specifically for those leaving the family home to their children or grandchildren. Even that comes with complications – it will be introduced in 2017 at £100,000 and increased to £175,000 over four years. There will be rules to cover someone who downsizes, so what they leave is not the house but the proceeds – they will still benefit, but their executors will no doubt have to work harder to keep track of what qualifies for the relief.

Also as expected, the Chancellor has focused his attention on the welfare budget, hoping to save £12 billion. He said he wanted to move to a 'higher wage, lower tax, lower welfare economy'. He has announced a higher National Living Wage and higher personal allowances – and has certainly cut welfare. It remains to be seen whether that will generate the economic activity he hopes for.

This booklet summarises the main announcements from the speech and the raft of documents released on the internet afterwards, and sets out the effect on typical taxpayers. We will be happy to advise you on what it all means for you personally.

Significant points