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Four important snapshots from the Summer Budget

The Chancellor’s unusual step of delivering a second 2015 Budget at the beginning of July meant that there was a second broad list of announcements to analyse, all of which could have an impact on personal and business finances in the near future. Here is our pick of the four announcements that may well need the most attention. If you would like to read our full Summer Budget summary, please click here.

Inheritance Tax

Inheritance Tax was changed during the Summer Budget announcement in an attempt to try to curb what the Chancellor described as the increasing number of normal working families being caught out by the taxation method. For anyone thinking about estate or inheritance planning, the change gives more flexibility with a new ‘property allowance’ of £175,000 per person available from 2020-2021 (a £100,000 allowance comes into force in April 2017). Coupled with the existing allowance, this change will eventually mean that a couple can pass on a £1 million estate without incurring an IHT liability.

Dividend taxation

The change to dividend taxation will particularly impact small business owners, although those who take income from investments may well also be caught by the change. A new £5,000 allowance makes that part of your dividend income tax free, but anything above this will be taxed at a rate linked to the rate of income tax you pay from April 2016. Basic rate payers will pay just 7.5% on anything above the £5,000, but additional rate taxpayers will see an increased rate of 38.1%, which will necessitate a need for careful planning in this area.

National Living Wage

The new ‘living wage’ will potentially put pressure on those of you who own or manage businesses, although the Chancellor did attempt to balance the books with a reduction in corporation tax. The living wage will start at £7.20 per hour from April 2016, with a commitment that it will rise to £9 per hour by 2020. Mr Osborne admitted there would be an impact on available jobs but described this as ‘fractional’. The living wage is said to equate to a pay rise for some 2.5 million workers.

Pension Contribution relief (and further changes to come!)

There have been a lot of changes to pensions in recent Budgets and this one was no exception, with the Chancellor committing to a review of pension taxation. That review could go as far as to implement an ‘ISA-like’ system of taxation to pensions, but for now Mr Osborne settled for a cut in the pension tax relief rate for higher earners. Those on £150,000 per year and above will now only be able to claim tax relief on contributions up to £10,000, instead of the current £40,000 limit. This change will be introduced on a tapered basis over the next few years so, with one eye on both that and future reforms, planning your pension carefully is as hot a topic as ever it was!