Posted by Adrian Trace on 17 Mar 2016
2016 Budget Summary
George Osborne has given his 2016 Budget speech to the House of Commons
The headline tax points picked out of the budget documentation are as follows:
- The personal allowance will increase from £11,000 in 2016-17 to £11,500 in 2017-18 and the higher rate threshold will increase by £2,000 to £45,000 in 2017-18. Hopefully this signals the end to the fiscal drag that we have seen on the higher rate threshold in recent years.
- The ISA allowance will rise from £15,240 to £20,000 in April 2017.
- From 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in. Funds can be used to buy a first home (up to £450k) with the government bonus at any time from 12 months after opening the account, and can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement. Any amount invested in a Lifetime ISA will utilise part of the £20,000 total ISA allowance.
- From April 2017 taxpayers are to receive two new £1,000 allowances for property and trading income. Individuals with property income or trading income below the level of the allowance will no longer need to declare or pay tax on that income. Those with relevant incomes above £1,000 can benefit by simply deducting the allowance instead of calculating their exact expenses.
The introduction of these allowances in addition to the existing personal allowance and the already announced £5,000 dividend allowance and £1,000 savings allowance (to be introduced from 6 April 2016), will mean that taxpayers could receive 5 different income tax allowances, each with different rules – hardly the tax simplification that we hear so much about.
- From April 2018, Class 2 NICs will be abolished saving 3.4 million self-employed people an average of £134 per year. Class 4 NICs will be reformed so that self-employed individuals continue to build entitlement to the State Pension and other contributory benefits.
- The legislation regarding termination payments is to be tightened up from April 2018 so that amounts received are charged to NICs where they are charged to income tax, i.e. only the first £30,000 tax free element is free of NICs.
Capital Gains Tax
- From 6 April 2016, the higher rate of Capital Gains Tax (CGT) will be reduced from 28% to 20%, and the basic rate will be reduced from 18% to 10%. There will be an 8 percent surcharge on these new rates for carried interest and for gains on residential property, effectively excluding these assets from the tax cut. If you are considering selling assets which will realise a capital gain, it may be worth delaying the disposal until after the new rates apply, where possible.
- Gains eligible for Capital Gains Tax (CGT) exemption through Employee Shareholder Schemes will be subject to an individual lifetime limit of £100,000. This limit will apply to Employee Shareholder Scheme arrangements entered into on or after 17 March 2016, and will not apply to arrangements already in place.
- Entrepreneurs’ relief will be extended to long term investors in unlisted trading companies regardless of whether they are employees or office holders of the company. 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, and subject to a separate lifetime limit of £10 million of gains. This will allow investors to save an additional £1 million of CGT on top of the existing entrepreneur’s relief scheme.
- Corporation tax to reduce to 17% by 2020, rather than the 18% previously announced, ensuring that the UK will have the lowest rate of corporation tax at that time, based on current plans.
- The loans to participators (s455) tax rate will be increased from 25% to 32.5% for loans incurred on or after 6 April 2016. This tax effectively levies higher rate dividend tax on loans to shareholders, and the tax rate on dividends is increasing from 6 April 2016, therefore this rise is not unexpected.
- For corporation tax losses incurred on or after 1 April 2017, businesses will be able to use carried forward losses against profits from other income streams or from other companies within a group. Up until this date, losses can only be used in this way in the year they are incurred; in following years trading losses can only be set against trading profits etc., so this change will help prevent the frustrating situation whereby companies have taxable profits whilst carrying forward losses that they are unable to utilise.
- Business rates cuts for half of all properties from 1 April 2017. Small Business Rate Relief (SBRR) permanently doubled from 50% to 100% and the thresholds increased so that businesses with a property with a rateable value of £12,000 and below will receive 100% relief and businesses with a property with a rateable value between £12,000 and £15,000 will receive tapered relief. The threshold for the standard business rates multiplier will be increased to a rateable value of £51,000.
- Soft drinks industry levy targeted at producers and importers of soft drinks that contain added sugar is to be introduced.
Stamp Duty, VAT and Other Matters
- The VAT registration threshold will increase in line with inflation to £83,000 from 1 April 2016.
- From 17 March 2016, new SDLT rates for commercial or mixed property will be 0% for the portion of the transaction value between £0 and £150,000; 2% between £150,001 and £250,000; and 5% above £250,000. This means that all freehold and lease premium transactions below £1.05 million will pay the same or less in SDLT. There are transitional rules for contracts exchanged, but not completed at that date. This follows the similar change to SDLT on residential properties which was introduced from December 2014. The banding will smooth the transition between SDLT rates.
- At the same time, a new 2% SDLT rate for leasehold rent transactions will apply where the net present value is above £5 million. These transactions are already taxed on a slice basis. All leasehold rent transactions up to £5 million will remain unaffected.
- An additional 3% of Stamp Duty Land Tax (SDLT) will apply to purchases of additional residential properties from 1 April 2016, such as second homes and buy-to-let properties, where the purchaser owns more than one property at the end of the day of purchase. This surcharge will be refunded if the original home is sold within 36 months of the purchase. The additional 3% of stamp duty will also apply to companies and trusts that acquire residential properties. Given the 1 April 2016 commencement date, there is obviously little time to act, but if you own a property portfolio and are considering restructuring, you should do so before the end of March if possible.
- For interest expenses over £2 million, tax relief for interest costs will be capped to 30% of taxable earnings in the UK or based on the net interest to earnings ratio for the worldwide group. This high threshold is due to the restriction being targeted at large multinational groups using interest to shift profits to countries with low tax rates, and is not intended to impact on most businesses.
- Disguised remuneration schemes often involve individuals being paid in loans through structures such as offshore Employee Benefit Trusts. The government will take action to tackle both the historic and continued use of these schemes, beginning with legislation in Finance Bill 2016 and with further action to follow in future Finance Bills. This will include a new charge on loans paid through disguised remuneration schemes which have not been taxed and are still outstanding on 5 April 2019.
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- Non-Resident Landlords – UK Tax Update
- Property Partnership Incorporation and SDLT
- Overseas Pension Changes 6 April 2017
- Tax Relief For Residential Mortgages
- UK Property Sales: Capital Gains Tax for Non-Residents