Summer Budget: Living wage, income and div tax
Higher thresholds for millions
George Osborne continued on the path set by the coalition government when he raised the income tax threshold to £11,000, from £10,800. He said that when taken together with the phasing in of his “national living wage” it would be worth £900 to every worker.
He also announced he was making good on the Tory election pledge to raise the higher rate income tax threshold to £50,000 by 2020. From April 2016 the 40p higher rate will not kick in until £43,000, up from £42,385 today.
The government will introduce a National Living Wage (NLW) for those over 25 of £7.20 in April 2016. The government’s ambition is for the NLW to increase to 60% of median earnings by 2020, and it will ask the Low Pay Commission to recommend the premium rate in light of this ambition going forward. On OBR forecasts, this means the NLW is expected to reach the government’s target of over £9 by 2020.
Dividend tax reform
In what amounts to an attack on those who set up personal service companies and pay themselves through dividends the Chancellor has scrapped the dividend tax credit and replaced it with an annual dividend tax-free allowance of £5,000. he also cut the rate at which dividend tax is paid by basic rate taxpayers from 10% to 7.5% from April 2016.
Dividends paid within an ISA or pension remain tax free. The Chancellor insisted that the vast majority of investors will see either no change to the amount of tax they pay on the dividends or a slight reduction as only those with shareholdings of £134,000 or more will be pay more tax as a result of today’s announced changes.