There was lots on the economy, as you’d expect. Welfare reform also featured, as did the introduction of a living wage of £9 per hour by 2020, changes to Vehicle Excise Duty and MoT rules, and measures overhauling business taxation.
In terms of family finances, the increase in insurance premium tax from 6% to 9.5% in November grabbed the spotlight – not least because no-one expected it.
It means a typical two-car family will pay around £35 a year more for their car and home insurance. And that makes it more important than ever to compare prices to find the lowest price.
The Budget reinforced our view, with the government saying that the Financial Conduct Authority “will review what more can be done to ensure that people are encouraged to shop around when they renew their insurance.”
We know that shopping around for the best deal works, which is why we campaign against the practice where insurers ‘auto-renew’ customers, reducing the likelihood of their shopping around and finding a better deal.
Yesterday an official report on the energy market by the Competition and Markets Authority also stressed the need for shopping around to find the right deal at the right price. That’s something you can do right here.
Changes to buy-to-let mortgages were also announced. At present, you can offset the interest on this sort of loan against tax, saving up to 45% in some cases.
But from 2017, buy-to-let landlords will only be able to claim 20% tax relief on their interest payments.
The rules on inheritance tax have also changed so that homes valued up to £1m can be passed to the next generation without a tax charge.
Income tax personal allowances were also tweaked in the Budget – from next April, we can all earn £11,000 before tax, and the threshold for 40% tax will increase to £43,000.
The increase in insurance premium tax grabbed the spotlight because no-one expected it...
On the road
There were also changes to vehicle excise duty, fuel duty remains frozen, and the MoT on new cars will last a year longer, increasing to four years.
The Chancellor also announced the launch of a Green Paper into the future of the savings market – something we’ll be reviewing in depth.
But for now here’s a run-through of the highlights from today’s Summer Budget…
Insurance Premium Tax
Insurance Premium Tax (IPT), as levied on car and home insurance premiums, will rise from 6% to 9.5% from November. We estimate this will add £35 to the insurance bill paid by a typical two-car family also buying buildings and contents cover.
The rates of income tax won’t change, but the thresholds at which they kick in will. From next April, the personal tax-free allowance will rise to £11,000, while the threshold for the higher, 40p tax rate, will rise to £43,000.
From 2017, you’ll get a new £175,000 inheritance tax allowance (on top of the existing £325,000) when you pass on your home to your children or grandchildren. For couples, that means a potential £1 million allowance that can’t be touched by the tax man.
Currently, buy-to-let landlords can deduct their costs, including mortgage interest, from their profits before they pay tax. But from April 2017 (and phased in over four years), mortgage interest relief on residential property will be restricted to the basic rate of income tax (20%).
From next April, homeowners renting out a room won’t pay tax on the first £7,500 of rent. This is up from the existing £4,250.
Rents in the social housing sector will be reduced by 1% a year for the next four years.
National Living Wage
A new National Living Wage of £7.20 an hour will be introduced in April next year and will rise to £9 an hour by 2020. It replaces the current minimum wage of £6.50 and all employers will be obliged to pay it to workers aged 25 and over.
Pensions tax relief
From next April, the amount of annual tax relief on pension contributions for those earning more than £150,000 will be cut from £40,000 to £10,000 a year, on a sliding scale.
There will also be a Green Paper on the future of pensions which could result in them being treated in a similar way to ISAs.
From April 6, 2016 there will be a third ISA category, the Innovative Finance ISA, which will offer the tax-free benefits of an ISA to anyone investing in the peer-to-peer (P2P) market.
Dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced with a tax-free allowance of £5,000 on dividend income from next April.
National Insurance Contributions and VAT
As pledged during election campaigning, the government will not increase National Insurance or VAT for the next five years.
Welfare and benefits
Working-age benefits will be frozen for four years, including Tax Credits and Local Housing Allowance. The freeze will not affect statutory maternity pay or disability benefits.
The existing £26,000-a-year benefits cap will be reduced to £23,000 for those in London and to £20,000 for those elsewhere.
Child tax credits for new claimants to be limited to two children after April 2017. Families who have a third child after April 2017 will not be able to apply for universal tax credits.
The Climate Change Levy will be removed on the grounds the renewable energy industry has become a sustained industry.
From 2017 there will be three new bands for Vehicle Excise Duty (VED or ‘car tax’) for new cars: Zero emission; Standard; Premium.
The duty in the first year will be set according to emissions, as it is today, but updated for new technology. After the first year, any car with completely CO2-free emissions will pay nothing in VED, while all other cars will pay a flat standard rate of £140 a year.
Cars with a list price above £40,000 will attract a supplement of £310 per year for the first five years in which the standard rate is paid.
VED bands will remain the same for any cars manufactured before 2017, meaning no-one will pay more for VED than they currently do.
Revenue raised from VED will go towards funding roads and infrastructure.
The deadline for the first MOT of new cars and motorcycles is to be extended from three years to four years.
The freeze on fuel duty remains in place.
From 2017, working parents with 3-4 year olds will receive up to 30 hours of free childcare each week.
Claims management companies
The claims management sector, which handles settlements for compensation or repayment, such as the mis-selling of PPI, will be reformed.
Early next year, a consultation will take place to look at capping the fees claims management companies charge, especially when claims fall within the remit of the Financial Ombudsman.
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