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July 2015 Budget preview

July 2015 Budget preview

George Osborne will deliver the second Budget of 2015 on Wednesday, July 8th. So, what can we expect?

The Economic Background

The outlook for the UK economy is reasonably good. The CBI have downgraded their growth forecasts for the year slightly, but are still forecasting growth of 2.4% for this year and 2.5% for next year. Unemployment continues to fall and welfare spending is at a 25 year low. Inflation turned negative in April, but Bank of England Governor, Mark Carney, is not worried about deflation, expecting inflation to start moving towards the 2% target level by the end of the year.

In Europe, Greece continues to teeter on the brink and there there are still problems in many European economies and we can’t expect the German taxpayer to pick up the bill indefinitely.

The US economy added 280,000 jobs in May which was well ahead of expectations and whilst the Chinese economy shows worrying signs of a slowdown, the Government there seems ready to take whatever action is needed to continue stimulating the economy.

What can we expect from the Chancellor?

In the Queen’s Speech we have already seen a commitment to introduce a law preventing rises in tax, VAT and national insurance during the life of this parliament.

We can expect the Chancellor to confirm that the Government will raise £1.5bn by selling its remaining share of Royal Mail. There will also be a further £3bn of savings from another raid on Whitehall departments: the Budget speech should then see confirmation of where the Government will further cut welfare spending.

There is likely to be a further commitment to continue raising the personal allowance. We may also see a commitment to raise the starting point for 40% tax to £50,000, probably by the end of this parliament.

We will certainly have further details of how he plans to raise the Inheritance Tax threshold on family homes to £1m for married couples/civil partners. The commitment is to do this by 2017, so he needs to act soon.

One unwelcome action on pensions may be to close the ‘salary sacrifice loophole.’ This is where employers allow staff to take a ‘pay cut,’ with the money instead being put towards pension contributions or other benefits like childcare, thus removing the amount sacrificed from National Insurance and this is  estimated to cost £5bn a year in National Insurance payments.

Other matters may include a veto for English and Welsh MPs over English/Welsh-only matters with Parliamentary procedures changed so that the details of any legislation, e.g. income tax, affecting England and Wales will be considered by a Committee drawn in proportion to party strength in England and Wales. We might also see the movement towards the replacement of the Human Rights Act with a British Bill of Rights.

The value of tax reliefs depends on your individual circumstances. Tax law can change. The Financial Conduct Authority does not regulate tax advice.

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