How is your money affected by what the Chancellor had to say?
Workers
The Chancellor announced a whole host of measures that affect workers, at all ends of the scale.
The big news for low earners is that from next April, a compulsory National Living Wage will be introduced instead of the Minimum Wage, at a rate of £7.20 an hour for over 25s. It will reach £9 an hour by 2020. According to the Government, this will mean a pay rise for 2.5 million workers.
What’s more, the personal tax allowance, which is how much you earn each year before you start paying Income Tax, is to increase to £11,000. Thereafter, the allowance will always rise in line with minimum wage.
The Government has said that it wants to see the personal tax allowance reach £12,500 by 2020.
If you are a public sector worker, you will see your wages increase by 1% a year for the next four years.
Benefit claimants
The Chancellor announced sweeping changes to the benefits system.
Working age benefits – which includes things like tax credits and local housing allowance – are being frozen for four years. According to the Chancellor, this means wages will catch up and take over benefits.
However, some benefits, including maternity pay and sick pay, will be excluded from the freeze.
People in England earning over £30,000 a year, or £40,000 a year if they live in London, who live in social housing will have to pay market rent, rather than subsidised rent.
However, the actual rents for social housing are to be reduced by 1% a year for four years.
The benefits cap – the amount that a household can claim in benefits in a single year – is being cut down to £20,000 outside of London, and £23,000 in the capital.
[SPOTLIGHT]Currently, Support for Mortgage Interest (SMI) exists to help people who have lost their job to meet the cost of their mortgage interest charges. From April 2016, the amount of time before you can claim the payments will increase to 39 weeks, while from 2018 it will be revamped into a loan rather than a benefit. These loans will then be repaid when the property is sold or when claimants return to work.
Working parents
Child tax credits will be limited to the first two children from April 2017. However, this only applies to new claimants – people currently claiming for more children will still receive their payments.
The free childcare provision for working parents of three- and four-year-olds will be doubled from 15 hours to 30 hours in some places from September 2016 and everywhere from September 2017.
Older parents
You will be able to pass on more to your children after you die. Promised before the election, a new ‘family home allowance’ will be introduced on top of the existing Inheritance Tax thresholds.
In reality the effect is that the threshold will rise from its current £325,000 for a single person to £500,000, and from £650,000 for married couples to £1 million.
Pension savers
There will be a reduced annual pension savings allowance for top earners. If you earn above £150,000, the annual allowance will be tapered away to a minimum of £10,000 from April 2016.
The amount that you can save in a pension over your lifetime free of tax is also being cut, from £1.25 million to £1 million, again from next April. This lifetime allowance will then increase annually at the rate of inflation from April 2018.
However, the Government says it wants to encourage more people to put money aside for retirement, so is to consult on whether to reform pensions tax relief to boost the incentives to save, for example by changing the rules so pension contributions come from taxed income, rather than untaxed as at present.
Drivers
From 2017, for brand new cars a new Vehicle Excise Duty banding system will be introduced. The rates charged in the first year will vary according to the emission levels, with a flat standard rate of £140.
There will be no change for existing cars.
The money raised from this new Vehicle Excise Duty will go towards a “new roads fund” to provide sustained investment into the nation’s roads.
The Government will also consult on extending the time before cars and motorbikes need their first MOT from three years to four years.
Finally, fuel duty will remain frozen this year.
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Students
The Chancellor said he wanted to address the cost of student maintenance grants, arguing it was unfair to ask taxpayers to subsidise grants for people who will end up earning more than them.
From 2016/17, grants will be replaced with loans for new students which only have to be paid back when they earn over £21,000 a year.
Landlords
Buy-to-let landlords have a “huge advantage” according to the Chancellor, as they can offset the costs they incur when calculating what tax they need to pay on their rental income. This has helped the rapid growth of landlords. It particularly helps wealthy landlords, as for every £1 of cost they incur, they can cut their tax spend by 40p or 45p.
Osborne announced that while landlords will retain tax relief, it will be restricted to the basic rate of tax. Withdrawal will only begin in April 2017.
Currently, the Rent-a-Room scheme means that you can rent out a room in your home and earn £4,250 in rent, tax free. This figure has remained unchanged for 18 years, so from next year it will be increased to £7,500.
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