Budget Overview March 2016

In a budget said to focus on “the next generation”, George Osbourne announced a number of new opportunities specifically aimed at savers under 40, families and small businesses. Below is an overview of the key announcements and how they affect individuals, companies and trustees.

Personal Taxation

• The tax-free personal allowance, which is set to rise to £11,000 on 6 April 2016, will be increased to £11,500 from 6 April 2017.
• The threshold at which people pay higher rate income tax will rise from £42,385 to £43,000 from 6 April 2016, and will rise again to £45,000 for the 2017-18 tax year.
• From April 2017, the government will introduce a new £1,000 allowance for property income and a £1,000 allowance for trading income.
• Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income.

Capital Gains Tax

• Capital Gains Tax to be cut from 28% to 20% for higher rate and from 18% to 10% for basic-rate taxpayers (However the 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property.)
• There will be an 8% surcharge for gains on residential property. This is effective from 6 April 2016.
• The annual CGT exempt amount available from 6 April 2016 will remain at the current level of £11,100.

Pensions and savings

• Annual ISA limit to rise from £15,240 to £20,000.
• A new “lifetime” ISA for the under-40s was launched, with the government putting in £1 for every £4 saved up until you reach the age of 50. It can be used towards a deposit on a first home worth up to £450,000. Individuals will be allowed to withdraw the savings at any time before they turn 60 for any other purpose but will lose the government bonus (and any interest or growth on the government bonus) and will also have to pay a 5% charge on the remainder. After an individual reaches 60, they can take out all the savings tax-free. Any contributions to a Lifetime ISA will sit within the overall £20,000 ISA contribution limit mentioned above.
• A consultation over the introduction of a ‘pensions advice allowance’ to allow people to withdraw savings, before the age of 55, to pay for regulated advice is to be launched. Up to £500 can be withdrawn tax free from defined contribution (DC) pensions to redeem against the cost of such financial advice.

Businesses

• Headline corporation tax to fall from 20% to 17% by 2020.
• The rate of tax payable on directors’ loans will increase from 25% to 32.5% from 6 April 2016.
• Small business rate relief will be permanently doubled in England from 1 April 2017. Thresholds will also be increased to £12,000 for 100% relief and £15,000 for tapered relief. It is estimated that 650,000 businesses will benefit from either paying no business rates, or paying a tapered amount.
• The VAT registration threshold will increase in line with inflation to £83,000 from 1 April 2016.

Stamp Duty Land Tax

• An additional 3% SDLT payable on the purchase of additional residential properties will come into force from 1 April 2016.
• No portfolio exemption will be in place from this additional charge.
• The qualifying time limit for an individual to elect to change their main residence will be extended to 36 months.
• Commercial stamp duty will be 0% on purchases of up to £150,000, 2% on the next £100,000 and 5% for the top rate above £250,000 effective from midnight 17th March 2016.
• A new 2% rate for high-value leases with net present value above £5m.

The overriding reaction has been a positive one, with a few unexpected surprises helping to boost confidence in the Chancellor’s long term plans for the country. Residential landlords, however, haven’t been left feeling quite so optimistic. With headline growth rates also being revised down to 2.0%, an air of caution still remains following slower economic growth than expected back in November last year.

To discuss the implications and opportunities of any of these changes, please contact your Finura Partners advisor.