Arguably, it is likely the surprise ‘Sugar Tax’ will be the most talked about initiative in the most recent budget but below are what we believe to be the summarised highlights from the budget delivered by Chancellor George Osborne on 16 March 2016. Much of the detail is still to be set out in the coming weeks and, as the exact tax implications will always be specific to your individual circumstances, we would recommend that you contact us to consider the implications for you in detail.
Please do not hesitate to contact us if you wish to discuss any of these issues in more detail.
Personal Allowance and Tax Bands
Personal allowance will be increased from the current rate of £10,600 to £11,000 for 2016-17 and to £11,500 for 2017-18, which is an increase of £300 on what was previously planned. The basic rate limit will be increased to £32,000 for 2016-17 and to £33,500 for 2017-18. Taken together this means the threshold where an individual pays income tax at 40% increases to £45,000 in 2017-18, which is £1,400 higher than previously announced.
Property and Trading Income Allowances
For the 2017-18 tax year the government are going to introduce £1,000 allowances for both property income and trading income. These new allowances will allow individuals with property income and/or trading income below £1,000 to no longer need to declare or pay tax on that income. Where individuals have income above the allowance they will be able to calculate their taxable profit either by deducting expenses in the normal way or by deducting this new allowance from their gross income.
Lifetime Individual Savings Account
This is a new initiative which will be available from April 2017 to adults under the age of 40. Individuals will be able to contribute up to £4,000 per year into this account and receive a 25% bonus from the government. The funds accumulated in these accounts can be used to buy a first home, after 12 months from account opening, and be withdrawn from the individuals 60th birthday.
It was also announced that the annual ISA subscription limit will be increased to £20,000 from 6 April 2017 an increase from the current limit of £15,240.
National Insurance Contributions (NIC)
It has been announced that Class 2 NIC will be abolished from April 2018. Class 4 NIC will be reformed to provide benefit entitlement but the details of this have yet to be announced.
Additionally, employers will now have to pay NIC on termination benefits above £30,000 from April 2018.
Capital Gains Tax
Capital gains tax rates will be cut with effect from 6 April 2016, with the higher rate falling from 28% to 20%, and the basic rate falling from 18% to 10%. However, the new rates will not apply to disposals of residential property.
Entrepreneurs’ Relief has been extended to shareholders in unlisted trading companies who are not employees or directors. However, the relief only applies to new shares subscribed for from 17 March 2016 and which are held for at least three years.
In response to feedback from measures announced in 2015, entrepreneurs’ relief can be claimed on goodwill provided the taxpayer’s interest in the acquiring close company is less than 5%; and entrepreneurs’ relief will be available on associated disposals to family members provided certain conditions are met.
The corporation tax rate will be reduced to 17% from April 2020. This is an additional 1% cut on the rate previously announced in the summer 2015 budget.
The rate of tax on company loans to participators will increase from 25% to 32.5% from 6 April 2016.
Stamp Duty Land Tax
The method for calculating stamp duty land tax on commercial property will change from 17 March 2017, with the charge being calculated depending on the portion of the purchase value which falls within each band, rather than being dependent upon which band the total purchase price falls within. The rates will be 0% on the first £150,000; 2% between £150,001 and £250,000; and 5% above £250,000.
- The standard rate of insurance premium tax will rise from 9.5% to 10% from October 2016.
- 100% business rate relief will be available on properties with a rateable value of less than £12,000, with a tapered rate on properties with values up to £15,000.
- Voluntary payrolling of benefits in kind has been extended to include non-cash vouchers and credit tokens.
- The availability of enhanced capital allowances for companies in designated Enterprise Investment Zones has been extended from five years to eight.T
- The VAT threshold has been increased to £83,000 from 1 April 2016 with the deregistration threshold increasing to £81,000.
Authors – Carol Lindsay and Vicky Reid