Osborne tinkered with inheritance tax and non-dom status in the UK's first Budget in a five-year parliament – and the Conservative party's first since its May election victory.
Today, the Conservative Party-led government released the second Budget for 2015 – the first to be fully controlled by a Conservative government in 18 years. Recent weeks have seen widespread murmurs of moves including a raised threshold for higher rate taxpayers and a quashing of inheritance tax for homes under £1 million ($1.53 million). Less expectedly, perhaps, was a move to get rid of the notion that a person could permanently enjoy non-domiciled status in the UK for the purposes of tax.
As expected, welfare cuts took the limelight as Chancellor, aka finance minister, George Osborne, laid out his deficit reduction plans, which included £37 billion of spending cuts for the next five years. The statement came against a background of worries about how a possible Greek exit from the eurozone could affect the UK economy. (To view wealth managers' reactions, see here.)
From 2017, family homes worth up to £1 million will be freed from the inheritance tax net. The current threshold at which the tax is levied at 40 per cent is £325,000 for singles and £650,000 for couples. The threshold hoist fulfils a pledge the Tories' made a fanfare of during their election campaign, and will be paid for by reducing pensions tax relief to highest earners.
“Promise made, promise delivered,” said Osborne in his speech to the House of Commons.
The government has put an end to permanent use of the “non-dom” tax status – the status that has lured in wealthy foreigners, allowing them to limit their tax bills on overseas earnings. From 2017, non-doms who've spent 15 of the last 20 years in the UK will pay the same tax as everyone else.
Osborne said that while non-doms have an “important place”, it is not fair for people to be born in the UK to non-dom parents and then claim to be non-doms themselves.
The clampdown on tax avoidance once again featured as a government priority, this time with the introduction of a ‘general anti-abuse rule’ penalty. Tough new measures for serial avoiders including publishing the names of those who repeatedly use failed tax avoidance schemes.
The budget set aside £750 million for HM Revenue and Customs to raise £2 billion while combating tax evaders.
The threshold at which the 40p higher rate kicks has been pushed up – as many saw coming – to £43,000.
Prime Minister David Cameron first hinted at a tweak to the threshold at last year’s Conservative party conference, at which he stated that too many people had been dragged into higher tax bands.
Corporation tax will be trimmed from 20 to 19 per cent from 2017 and to 18 per cent from 2010 in a bid to create more jobs.
“We are giving businesses the lower taxes they need to grow with confidence. Britain is open for business,” said Osborne.
Other changes include an update to the UK's dividend tax system. The government is replacing tax credit with a tax-free allowance of £5,000 of dividend income for all taxpayers, with new rates of dividend tax of 7.5 per cent, 32.5 per cent and 38.1 per cent.