Budget 2016 – Initial ‘Headlines’

Personal Tax Allowances

The Personal Allowance will increase to £11,500, and the higher rate threshold will rise to £45,000 in April 2017

The Personal Allowance is the amount of income you can earn before you start paying Income Tax. From 2016 to 2017, there will be one personal allowance for all individuals regardless of an individual’s date of birth. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017. The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.

These increases are to ensure progress is made towards the government’s commitment to raise the personal allowance to £12,500 and the higher rate to £50,000.

Cumulative changes to the personal allowance and higher rate threshold between 2015 to 2016 and 2017 to 2018 mean a typical basic rate taxpayer will have an overall cash gain of £180 and a real terms gain of £166. A typical higher rate taxpayer will have an overall cash gain of £442 and a real terms gain of £399.

Property and trading income allowances

From April 2017, a new £1,000 allowance for property income and a £1,000 allowance for trading income is being introduced. Individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income. Individuals with income above the allowance will be able to calculate their taxable profit by either deducting their expenses in the normal way or by simply deducting the relevant allowance.

This measure will be particularly good news for people who make occasional profits from, for example, selling goods online or renting out a garage or drive.

Capital Gains Tax (CGT)

Cuts to Capital Gains tax rates from 6 April 2016 but residential property still taxed at current rates

From 6 April 2016, the rates of capital gains tax suffered by individuals on disposals (other than residential property) are being cut as follows:

Gains falling within the basic rate band – cut from 18% to 10%

Gains falling into the higher rate band – cut from 28% to 20%

Gains made on the disposal of residential property which does not qualify for private residence relief will still be subject to tax at the existing rates (of 18%/28%).

CGT rate reduction for long-term investors

Entrepreneurs’ relief will be extended to external* long term investors in unlisted companies. This will provide a 10% rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016. There is a separate lifetime limit of £10 million regarding such gains.

*not employees or officers of the company

National Insurance Contributions (NIC)

Class 2 NIC contributions for self-employed to be scrapped from April 2018

Self-employed people currently have to pay Class 2 NIC at £2.80 per week if they make a profit of £5,965 or more per year and these contributions enable self-employed people to build entitlement to the state pension and other contributory benefits. They also pay Class 4 NIC if their profits are over £8,060 per year.

From April 2018, Class 2 NIC’s are being abolished. In order to ensure that self-employed people can continue to build benefit entitlement following abolition, Class 4 NIC’s will also be reformed.

Business Rates

Welcome cuts to business rates for small businesses. From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. Currently this full relief from business rates in only available for businesses that occupy properties with a value of £6,000 or less.

Businesses with a property with a rateable value between £12,000 and £15,000 will receive a tapered rate of relief.

As a result of these changes, 600,000 small businesses will pay no business rates at all and an additional 50,000 will benefit from tapered relief with effect from April 2017.

Soft drinks industry levy

A new soft drinks industry levy is set to be introduced from April 2018. This will be paid by producers and importers of soft drinks that contain added sugar, but there will be an exclusion for small operators. The levy will be charged on volumes according to total sugar content, with a main rate charge for drink above 5 grams of sugar per 100 ml and a higher rate for drinks with more than 8 grams of sugar per 100 ml.

Lifetime ISA and ISA limit – great news for younger investors

A new Lifetime ISA will be available from 6 April 2017 for individuals between the ages of 18 and 40. They will be able to contribute up to £4,000 per year, and receive a 25% bonus from the government until their 50^th Birthday. For every £4 invested, the government will add £1. Funds, including the government bonus, from the Lifetime ISA can be used to buy a first home at any time once the account has been open for 12 months, or can be withdrawn once the individual is aged 60.

In addition the overall annual ISA subscription limit available to all individuals will be increased from £15,240 to £20,000 from 6 April 2017.

Stamp Duty Land Tax (SDLT) headlines

SDLT – Additional Properties

As previously announced, the government will introduce higher rates of SDLT on purchases of additional residential properties from 1 April 2016. The higher rates will be 3% above the current SDLT rates. It was announced today that following consultation, there will be no exemption from the higher rates for significant investors. In a further revision to the initial announcement last autumn, purchasers will have 36 months rather than 18 months to claim a refund of the higher rates if they buy a new main residence before disposing of their previous main residence.

SDLT – Commercial Property

Following prior reforms to the residential SDLT regime, today the Chancellor announced reforms to the non-residential regime, once again moving away from the previous slab style system which can see vast differences in the SDLT liability for sales that only differ by small amounts.

The government is amending the rates and thresholds so that the portion of the transaction value up to £150,000 is charged at a rate of 0%, the portion between £150,001 and £250,000 is charged at a rate of 2%, and the portion over £250,000 is charged at a rate of 5%.

Apprenticeships

As announced in the Autumn Statement 2015, an apprenticeship levy will be introduced in April 2017, and employers that are committed to training will be able to get out more than they put in. From April 2017, employers will receive a 10% top-up to their monthly levy contributions in England and this will be available for them to spend on apprenticeship training through their digital account. The government will set out further details on the operating model in April and draft funding rates will be published in June.

Corporation Tax headlines

Loans to participators

The loans to participators rules aim to prevent owners of close companies avoiding Income Tax and National Insurance contributions by remunerating themselves through loans or advances that are not repaid, rather than taking dividends or salary. For loans, advances and arrangements made on or after 6 April 2016, the rate of tax payable by close companies on such loans will be increased from 25% to 32.5%.

Corporation tax rates

The corporation tax rate has been cut further to 17% from 1 April 2020. The current rate of 20% will reduce to 19% from 1 April 2017 and to 17% from 1 April 2020.

Corporation tax loss relief

The government will introduce two changes from 1 April 2017. Firstly, the rules will be made more flexible so that losses carried forward can be used against profits from other income streams or other companies within a group. Secondly, the government will only permit 50% of the profit to be reduced by losses carried forward. However as this restriction will only apply to profits in excess of £5 million, 99% of all companies are unaffected. For groups, the £5 million allowance will apply to the group.

Making sure large companies can’t artificially shift profits out of the UK

Some large companies use excessive interest payments to reduce the tax they pay on their profits in the UK. Relief on interest payments will now be capped at 30% of UK earnings, with exceptions for groups with legitimately high interest payments.

Over the next 5 years, the government will raise nearly £8 billion from large companies and multinationals through changes to the rules on interest and other measures, including:

• introducing rules to prevent multinational companies avoid paying tax in any of the countries they do business in
• taxing outbound royalty payments better – these are fees for using intellectual property like patents and copyrights – meaning multinationals pay more tax in the UK
• making sure offshore property developers are taxed on their UK profits