What the New Prime Minister Could Mean for YOUR Finances?
Boris Johnson recently won the leadership race for the Conservative Party, meaning he is now the Prime Minister in the UK. But what will that mean when it comes to personal finance? The prime minister has already announced pension tax relief changes and an increased higher rate income tax threshold, but what else is to come?
Johnson won the race with a landslide victory of 92,153 votes, against Jeremy Hunt who received 46,656. While the plan for Brexit will be in the limelight for most people, we can still look at Johnson’s campaign pledges regarding finance.
According to research, a staggering 10.5 million Britons believe they are in the worst financial position they have ever been in, a fifth of the country. Statistics also highlight that 43 percent of the population do not understand how Brexit will affect their domestic bills.
Increasing higher-rate income tax threshold to £80,000
During the race for Tory leadership, Mr Johnson promised to raise the higher rate income tax threshold from £50,000 to £80,000. This increase represents a £9 billion tax boost to 4 million people, benefitting the top 10 percent of earners.
Mr Johnson hinted that to cover the change, National Insurance (NI) thresholds may be raised and further suggested intent to increase the point in which NI payments start to boost lower earners.
The IFS estimates that every £1,000 increase in the NI primary threshold, which currently stands at £8632, would cost the Treasury £3 billion.
Pension tax relief changes
Another key promise made by Johnson during the race was the ‘fix’ he will make to the pension tax crisis currently overwhelming the NHS.
The current issue involving tapering of the annual tax-free allowance for people with total earnings exceeding £150,000, has added significant strain to overburdened hospitals as doctors are refusing shifts to avoid significant tax bills.
Johnson is yet to suggest how he will fix the issue but scrapping the taper could be a potential solution. This could then be a starting point for a much broader review of the pension tax regime, simplifying it and increasing the amount of people saving for retirement.
Such action would set the Treasury back however, around £1 billion back, which would need to be recovered somehow. Again, Mr Selby suggested that the likelihood of this happening stands at 6/10.
Until Johnson announces his plans, we can only speculate at how he will fulfil his promises. The government interfering with the pension tax architecture to source funding following the 2008/09 economic downturn has shown how easily complications can arise due to the complexity of adjusting these allowances.
Stamp duty overhaul
Good news is potentially on the horizon for first-time buyers, as a stamp duty cut would represent a major giveaway of up to £10,000 for those looking to purchase their first home and £15,000 for other property buyers.
This news comes from a proposal for the reform of Stamp Duty Land Tax, scrapping the tax on homes worth less than £500,000. This will likely be part of an emergency budget plan if the UK leaves the EU with no deal.
The risk however is house price inflation, as stimulating demand without building more houses could cause blowback. The chance of this happening stands at 8/10.