On Wednesday 8th March the Chancellor of the Exchequer, Philip Hammond, delivered his first (and last) Spring Budget Statement as the UK begins the process of leaving the European Union. He informed the House of Commons that there would not be any additional borrowing to pay for spending commitments in this budget.
Key announcements included an attack on entrepreneurs with a significant increase in National Insurance Contributions for over 4 million self employed and a reduction in the zero tax rate dividend allowance for shareholders. Given that many of the spending pledges related to education and social care applied to England only this will trigger a welcome additional £200 million of funding for Wales.
Below is our summary and analysis of the key aspects of the 2017 Budget Statement
Income Tax Rates & Allowances
- The 2017-18 personal tax allowance is to be increased to £11,500. The personal tax allowance has now increased by 77% from its 2010 level of £6,475
- The basic rate tax band for 2017-18 will be £33,500.This means that individuals can receive income up to £45,000 before being liable to higher rate for 2017-18. National Insurance Contributions upper earning limits will also increase to remain aligned with the income tax higher rate threshold. 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 for 2017-18 are unchanged at 20%, 40% and, for income above £150,000, 45%. Where income is above £100,000 the personal allowance is reduced by £1 for every £2 of income over £100,000 until income reaches £123,000 when it disappears completely.
- The zero tax rate ‘dividend allowance’ is to be reduced from £5,000 to £2,000 from April 2018. This is a surprising and significant change given that the dividend allowance was only introduced from the 2016-17 tax year.
Personal Investments & Savings
- The overall ISA annual investment limit is to be increased to £20,000 from April 2017.
- A new ‘Lifetime ISA’ is available 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 if the money is used to buy a home or as a pension from the age of 60
- A new NS&I Investment Bond is to be available from April 2017 which will pay 2.2% annual interest on investments up to £3,000. This confirms the announcement made in the Autumn Statement 2016.
Buy-to-Let Property Mortgages
- The amount of tax relief on ‘buy-to-let’ mortgages is to be cut over the course of four years from April 2017 with only basic rate relief eventually allowed.
Digital Tax Administration
- ‘Making Tax Digital‘ for unincorporated businesses and landlords with turnover below the VAT threshold is to be delayed by 12 months until April 2019. This will provide them with more time to prepare for digital record keeping and quarterly updates.
- The rate of corporation tax is to be reduced by 1% to 19% from April 2017.The rate is scheduled to reduce to 17% from April 2020. The UK now has the lowest corporate tax rate in the G20 group of countries.
- Class 2 flat-rate National Insurance Contributions are to be abolished from April 2018 as previously announced.
- Class 4 National Insurance Contributions payable by the self-employed are to be INCREASED from 9% to 10% from April 2018 with a further 1% increase to 11% from April 2019. These controversial increases in Class 4 NIC are being justified in order to reduce the gap in tax rates payable by the self-employed and employees and to reflect the introduction of the new State Pension to which the self employed now have the same access.
- Public houses in England with a rateable value of less than £100,000 are to receive a £1,000 discount on the business rates they pay.
Capital Gains Tax
- The CGT Annual Exemption for 2017/18 is be increased by £200 to £11,300. The annual exemption for trusts is increased to £5,650.
Inheritance Tax (IHT)
- The main IHT nil rate band continues to be frozen at £325,000.
- An additional residence nil rate band (RNRB) of £100,000 is available from 6 April 2017 for transfers of a main residence to direct descendants (rising to £175,000 by April 2020).
Value Added Tax
- The VAT compulsory turnover registration threshold is increased in line with inflation to £85,000 from April 2017. The de-registration level is increased from £81,000 to £83,000.
- VAT Flat Rate Scheme: HMRC have updated their guidance on important changes to the Flat Rate Scheme which are being introduced from 1 April 2017. A detailed article with links to relevant HMRC documents is available on the Marsh Vision website at: http://www.marshvision.com/Important-Changes-to-the-VAT-Flat-Rate-Scheme.asp.
- The Office of Tax Simplification has recently issued a report and a call for evidence on the future simplification of VAT.
Vehicle Excise Duty
- New rates of Vehicle Excise Duty (VED) are being introduced for cars first registered on or after 1 April 2017.
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