On Wednesday 16th March the Chancellor of the Exchequer delivered his eagerly awaited 2016 Budget Statement with a focus on the ‘next generation’ having earlier promised ‘long-term solutions not short-term fixes’. The Chancellor announced however that some spending cuts are necessary to keep his fiscal plan on course to enable a Budget surplus by 2019-20.
Key announcements included a new Lifetime ISA for under 40s, a continuing freeze in fuel duty, a reduction in Corporation Tax and Capital Gains Tax and the abolition of Class 2 National Insurance Contributions.
Below is our summary and analysis of the key aspects of the 2016 Budget Statement. Note that several of the proposed changes for the forthcoming 2016-17 tax year were announced prior to the Budget
Income Tax Rates & Allowances
- The personal tax allowance is to be increased to £11,000 for 2016-17 and a further £500 to £11,500 for 2017-18. By 2017-18 the personal tax allowance will have increased by 77% from its 2010 level of £6,475.
- The basic rate tax band for 2016-17 will be £32,000. This means that individuals can receive income up to £43,000 before being liable to higher rate income tax for 2016-17 and £45,000 for 2017-18. The NIC upper earnings limit will also increase to remain aligned with the higher rate thresholds.
- There is a commitment to increase the personal allowance to £12,500 and higher rate threshold to £50,000 by the end of the current parliament.
- The main rates of income tax are unchanged at 20%, 40% and, for income above £150,000, 45%. Note from 2016-17 new rates apply to dividend income. Where income is above £100,000 the personal allowance is reduced by £1 for every £2 of income over £100,000 until income reaches £122,000 when it disappears completely.
- From April 2016 the ‘loans to participators’ tax rate will increase to 32.5% from 25%. This increase keeps it aligned with the new higher rate of income tax on dividend income applicable from 2016-17.
Personal Investments & Savings
- The overall ISA annual investment limit is to be increased from the current £15,240 to £20,000 from April 2017.
- A new ‘Lifetime ISA’ is to be introduced from April 2017. This will be available to adults under 40 with the Government providing a 25% bonus for every £1 saved up to £4,000 per year.
- From April 2016 basic rate taxpayers will not have to pay tax on the first £1,000 of their savings income. The limit will be £500 for higher rate taxpayers.
- From April 2016 banks and building societies will no longer deduct basic rate tax from interest
- The Lifetime Pensions Allowance is to be reduced to £1 million from £1.25 million from April 2016. This change was previously announced in 2015.
- The unified rate of corporation tax is to be reduced to 17% from April 2020. The rate is already scheduled to reduce to 19% from April 2017. This will benefit over 1 million companies and is the lowest rate of corporation tax in the G20 group of countries.
- Class 2 National Insurance Contributions are to be abolished April 2018. This will benefit around 3.4 million self-employed. The self-employed will continue to be liable to Class 4 NIC which are due to be reformed from April 2018.
- From April 2018 Employer Class 1 NIC will be payable on employee termination payments above £30,000 where income tax is also due.
- From April 2017 the ‘Small Business Rate Relief’ scheme threshold eligible for 100% relief is to be doubled to £12,000. A tapered relief will apply to businesses with a property with a rateable value between £12,000 and £15,000Given that business rates are fully devolved in Wales this change applies only to businesses located in England. It is hoped that as Wales operate a similar rate relief regime for small businesses the enhanced rules will be adopted by a new Welsh Assembly Government from April 2017.
Capital Gains Tax
- The higher rate of CGT is to be cut to 20% from 28% and the basic rate from 18% to 10% (except for residential property) from April 2016.
- Entrepreneurs’ Relief is to be extended to long-term external investors in unlisted companies. The special ER rate of 10% and lifetime limit of £10 million are both unchanged.
- A new method of calculating stamp duty on commercial property transactions is being introduced immediately from 17 March 2016. The new rates will apply to the value of the property over each band as follows ~ 0% up to £150,000, 2% between £150,001 and £250,000 and 5% above £250,000.
- The IHT nil rate band continues to be frozen at £325,000.
Value Added Tax
- The compulsory turnover registration threshold is increased in line with inflation to £83,000 from April 2016.
Other Significant Announcements
- Insurance Premium Tax standard rate is to be increased by 0.5 to 10%. The additional revenue raised is to be used to fund improved flood defences.
- Fuel duty will continue to be frozen through 2016-17. By the end of 2016-17 fuel duty will have been frozen for 6 years.
- A new ‘sugar’ levy is to be introduced from April 2018 and will be paid by producers and importers of soft drinks.
- There is to be a 50% reduction in the Severn Bridge Crossings toll from 2018 once the current concession ends.
- From April 2017 two new £1,000 tax free allowances are to be available to ‘micro-entrepreneurs’. Individuals with property or trading income below the level of the allowance will not need to declare the income to HMRC.
If you would like to discuss any of the above proposals and how they relate to your individual circumstances then please do not hesitate to email us on firstname.lastname@example.org or ring us on 01633 215 544