Insights

Another term for the Tories – what’s in store for taxpayers?

By Lesley Stalker on 11 May 2015

Based on expert forecasts, we were all set for a hung parliament and an emergency budget in the coming weeks from a coalition government. Now, with a Conservative majority, we can reflect on their previously published policies and examine what these are likely to mean for UK taxpayers in the short term.

Increased IHT (inheritance tax) threshold

This change has been on the cards for a long time. It is 9 years since the current threshold of £325,000 per individual was introduced. This was later extended with the introduction of a transferable nil rate band, which provides an effective exemption of £650,000 to married couples and civil partners, no matter how their assets are bequeathed.

Now, the Tories have promised to remove all inheritance tax (IHT) liabilities on family homes valued up to £1m, when they are passed on death down through the generations to children. This will be achieved by introducing an additional £175,000 transferable allowance for a spouse or civil partner to utilise in conjunction with their existing £325,000 IHT allowance, bringing the tax free allowance to £500,000 per person. When all the exemptions are combined on a second death, the total IHT free allowance becomes the amount of £1,000,000 which has been much mentioned in the past.

Exactly when this policy is to be introduced is not confirmed.

Reduced income tax

Under the Tories, we are told that take-home pay will increase in multiple ways:

The minimum wage will increase to £8 per hour and policy is set to be introduced which means that any worker on the minimum wage and working for 30 hours a week will not incur income tax or NI contributions;

The personal allowance will increase to £12,500 (currently £10,600) and the threshold at which the 40% tax rate starts will increase to £50,000 (currently £42,386);

The higher rate threshold at which the tax rate of 45% commences is however set to remain at the current level;

The Conservative party has also pledged that there will be no increase to income tax, national insurance contributions or VAT during their next term in office.

Help to get on the property ladder

The existing Right to Buy scheme will be extended to support those living in housing association properties and wanting to buy their property;

As unveiled in the last Budget, other taxpayers wanting to buy a home will have assistance in the form of a tax rebate for saving towards a deposit. The Tories are planning to launch a Help to Buy ISA. This will work by giving savers using the special ISA an extra £50 (up to a maximum of £3,000) for every £200 they save for a deposit. This means that aspiring home owners can build up a tax free deposit of £15,000 with £3,000 coming straight from the government;

Buyers with a 5% deposit can apply for an interest free loan over 5 years to cover 20% of the cost of a new build property though the existing Help to Buy Scheme, which will run until 2020;

Other schemes available to support home buyers include a Help to Buy mortgage guarantee, which is designed to help buyers with a 5% deposit to secure a mortgage, which is then guaranteed by the government against a default in repayments.

Relaxed pensions tax rules

Tax changes that took effect in April giving pension pot owners more freedom over the way they can access their money will remain in place.

Restrictions to the amount of tax relief available for pension savers will also however remain in place and the pensions Lifetime Allowance will be capped at £1m. After this point a pension pot will attract tax, meaning the advantages of having a larger pension pot are significantly diminished.

What else is in store for taxpayers?

Free childcare for working parents

Working parents with 3/4 year old children will be entitled to 30 hours a week of free childcare which is estimated to be worth £5,000 a year.

Freeze in train prices

Price increases to train fares (regulated fares include season tickets, on-the-day fares and long distance off-peak fares) will be restricted to fall within inflationary limits for the next term of government.