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Budget breakdown: changes for drivers and homeowners

James Watkins - Law on the Web

  1. 09 July 2015
  2. Miscellaneous
  3. 0 comments
British purse

Yesterday, Chancellor George Osborne unveiled the first budget by a Conservative-only government since 1996. Today, we look at the implications for different areas of the law and how the changes will affect you.

New car tax will fund fixing of roads

Vehicle excise duty (VED, aka car tax or “road tax”) is undergoing an overhaul, with the chancellor professing his desire to improve Britain’s roads and ease the burden on those who can only afford older, higher-emission vehicles.

The new system, to be introduced in April 2017, will introduce three different bands for cars registered after this date – a standard rate, a zero rate, and a premium rate.

The majority of drivers will pay the ‘standard’ rate of £140 a year, while cars with zero C02 emissions will fit into the ‘zero’ band, paying no tax at all. The ‘premium’ rate will be levied on cars sold for more than £40,000 when new, and will see owners paying £450 per year for the first five years.

The chancellor pointed out that this rate is lower than the £166 that the average motorists pay under the current system – however, it is bad news for those who drive more eco-friendly cars.

In the first year of its life, a more eco-friendly car will be eligible for a lower tax rate – in subsequent years, however, most will pay tax at the standard rate, with only cars with zero emissions being eligible for the zero tax band.

The chancellor described the old system as “regressive”, saying that it forced those who could only afford older cars to pay higher tax than those who could afford more expensive, lower-emission models.

However, Mike Hawes, from the Society of Motor Manufacturers and Traders, warned that the move would “disincentivise take up of low emission vehicles”, and make it difficult for the sector to hit targets on reducing C02 emissions.

The changes will only affect vehicles registered after the changes come into effect, so there will be no change to tax on existing cars.

Proceeds from the new VED will go towards a new fund dedicated to investment in roads. Motorists have not paid a tax towards the maintenance of roads since 1937, when the previous road tax was abolished at the urging of Winston Churchill himself. He felt that having vehicle tax go directly to the maintenance of roads gave motorists a sense of ownership over the roads, at the expense of other road users.

MOTs and fuel duty

VED reform isn’t the only change on the horizon for motorists. The chancellor announced that the deadline for a car’s first MOT is to be pushed back to four years, from the current deadline of three.

While good news for motorists who would like an extra year’s reprieve from a new car’s MOT, concerns have been raised over the impact this will have on road safety.

The National Tyre Distributors Association (NDTA) announced their intention to challenge the measure, describing it as “flawed”, and suggesting that the deadline for MOT should be based on alternative criteria, such as the car’s mileage.

The decision to keep fuel duty frozen this year was also warmly greeted, though some warned that the lack of any mention of extending the freeze beyond this year portended an increase in the near future.

David Bizley, chief engineer for the RAC, said: “While oil prices are expected to stay low, the oil market is notoriously hard to predict so there is always the chance that fuel prices will be considerably higher by the time of the Budget in March 2016 and any increase in duty would therefore have a negative effect on the economy.”

A new living wage for over-25s

One of the potentially most significant manoeuvres included in the budget was the introduction of a national living wage – from April next year, all workers over 25 must be paid at least £7.20 an hour, with this rising to £9 by 2020. This is likely to affect 2.5 million workers.

Inheritance tax breaks for homeowners

There was good news for parents and grandparents hoping to leave their homes to their offspring. Mr Osborne announced the introduction of a “family home allowance”, which will increase the inheritance tax threshold for parents who want to pass on their family home to their children.

The inheritance tax threshold is currently set at £325,000, meaning that if an individual’s estate is worth more than this, tax must be paid at 40% on the amount above the threshold. (Married couples and civil partners who own a house together can stack their allowances to push the overall threshold up to £650,000).

From April 2017, this will be increased to £500,000 per person for married couples and civil partners who own their own homes, meaning that they can leave a property worth up to £1 million to their children without any inheritance tax being due.

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