Summer Budget: Better or worse off next year?

Summer Budget: Better or worse off next year?

Has this year's Summer Budget put more money in your pocket or left you counting the cost? We look at six different scenarios.

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Summer Budget 2015

Retired couple

Frank (86) and Sally (82) are a married, retired couple. They have a joint income of £50,000.

 

Year Net Income after IT & NIC Gain/(Loss)
2015/16 £48,171 -
2016/17 £48,374 £203

 

Frank are Sally are better off due to the increase in the personal allowance and higher rate band.

Single parent with one child

Alex is a single parent in her late 20s. She earns £15,000pa working 30 hours a week and relies on paid childcare for her one child.

 

Year Net Income after IT & NIC Gain/(Loss)
2015/16  £18,950 -
2016/17  £17,768  (£1,182)

 

Alex is worse off due to the changes in the child tax credit.

Married couple with two children: Scenario A

John and Sue are both in their late 30s and have two children. They have a joint income of £150,000.

 

Year Net Income after IT & NIC Gain/(Loss)
2015/16 £101,652 -
2016/17 £102,058 £406

 

The married couple have benefitted from the increase in the personal allowance and higher rate band.

John and Sue were not in receipt of tax credits in 2015/16 as they were abated to nil, and these are still abated to nil in 2016/17.

Married couple with two children: Scenario B

Jason and Laura are both in their late 30s and have two children. Jason earns £30k per year.

 

Year Net Income after IT & NIC Gain/(Loss)
2015/16 £26,705 -
2016/17 £25,576 (£1,129)

 

The married couple have benefitted from the increase in the personal allowance. However, they have lost out overall due to the accelerated withdrawal of tax credits.

Graduate starting accounting job in London

Steven has just finished university and is starting work as a trainee accountant in London on £30,000pa. He has taken out the full student loan available to him and is starting to make repayments.

 

Year Net Income after IT & NIC Gain/(Loss)
2015/16  £23,487 -
2016/17  £23,567  £80

 

Steven is better off due to the increase in personal allowance.

Inheritance tax

Frank and Sally intend to leave their home worth £2.150m to their children on their death. They have no other assets and have not made any gifts in the last 7 years.

If Frank and Sally were to die in 2017/18, they may pay £50k less inheritance tax on passing on their property due to the announced inheritance tax changes

 

  2016/17 2017/18
Property valued at £2,150,000 £2,150,000
Nil rate band - £325,000  - £325,000
Nil rate band (spouse transfer) - £325,000 - £325,000
Restricted additional nil rate band   - £125,000 (Note 1. and 2)
Net estate £1,500,000 £1,1375,000

 

40% of net estate £600,000 £550,000
Inheritance tax due £600,000 £550,000

 

Difference £50,000 less paid in inheritance tax

 

(Benefit eliminated for properties worth over £2.4m)

Note 1. In 2017/18 tax year maximum additional nil rate band will be £100,000 each.

Note 2. Additional nil rate band will be restricted by £1:£2 over £2million threshold. 

Assumptions:

  • Frank has maximum state pension
  • Sally's state pension does not exceed her personal allowance
  • Rates and allowances for which no announcements made are kept as per 2015/16

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