The first all-Conservative Budget speech delivered today by George Osborne was packed with news. The essence was somewhat as expected, with a key focus on working people, healthcare, education and welfare reform, and how this Government plan to further strengthen the economy to support their objectives. Key points were raised that could affect the financial and taxation affairs of doctors and dentists. Here we summarise.
Economy sum up
The Office for Budget Responsibility (OBR) have set targets to turn the budget deficit into a budget surplus by 2019-2020. It would be the biggest structural budget surplus in 40 years.
Government department and welfare cuts are the lions share of where budget is planned to be recouped, however a further crackdown on tax avoidance is expected to bring in £5 billion towards their goals.
Changes to taxation – key points for doctors and dentists:
Income tax:
- The personal allowance will be set at £11,000 from 2016-17, and the target is to get this to £12,500.
- Similarly the higher rate tax threshold has been increased in this tax year to £43,000, with a target of £50,000 in future years.
- The plans are to lock increases in income tax, national insurance and VAT for 5 years and we are expected to hear more details in the coming weeks.
- 29 million people are expected to pay less tax as a result
Corporation tax:
- Corporation tax will be reduced in 2017 to 19 percent, and 18 percent by 2020, sending the message that the UK is open for business
- This is a reduction from 28 percent in 2010, when George Osborne became Chancellor
Dividends:
- The 10% dividend tax credit will be replaced by a flat £5,000 tax free dividend allowance.
- Tax on dividends will also change; 7.5 percent for basic rate tax payers, 32.5 percent for higher rate tax payers and 38.1 percent for top rate tax payers.
This could have an effect on the tax liability for UK doctors and dentists who are using a limited company and dividend planning as part of a tax planning strategy.
National insurance:
- Small firms will be able to recruit up to 4 staff on the National Living Wage and not pay any National Insurance, with a £3,000 employment allowance
Tax breaks:
- The temporary tax break “The Annual Investment Allowance” for the purchase of capital equipment, machinery and fittings expires in December 2015. It will be set at £200,000 from 1 January 2016, so whilst it is a reduction from the current £500,000, it is still a generous tax break.
Inheritance tax:
- The inheritance tax allowance will be increased by £175,000 in 2017 if homes are left to children or grandchildren. Currently, the allowance is £325,000 resulting in a new allowance of £500,000, although relief is tapered for properties valued in excess of £2 million.
Non domiciles:
- There has been much talk of this in recent months and it has now been announced that non-domiciles who have lived in the UK for 15 of the last 20 years will not be able to claim the same tax status.
- Also, ineligible for the tax status will be individuals who live in the UK and have UK domiciled parents
Property & investments
- Buy-to-let landlords will see the tax relief they can claim on their mortgage interest reduced to the basic rate of tax, which currently stands at 20 percent. This is in an attempt to slow down the booming buy-to-let property market of recent years, which could pose economic risk, according to the Chancellor.
- There is talk of a pension product which will be taxed on contributions rather than on withdrawal
- As hinted, high earners, earning over £150,000, will receive less pension tax relief as their allowance will be tapered from £40,000 per year to £10,000.