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Budget Comment March 2016

In spite of the commentators on the day over-dramatising (no surprise there!), it was another quiet one from a tax perspective. Witness the following day headlines almost all highlighting tax on sugary drinks!

I’m never sure whether to categorise the announcements by topic or by the date they are effective. Let’s do the date:

Backdated to 17 March 2015
  • There are changes to Entrepreneurs Relief relaxing certain restrictions on transfers to family and on amount of ownership required.
  • From 6 April 2016
  • Probably the biggest Budget change was the massive reduction in the higher Capital Gains Tax rate from 28% to 20% and the lower rate from 18% to 10%. But not on residential property. This is an unexpected bonus for the few that are affected!
From 6 April 2017
  • There will be a new Lifetime ISA for the under 40s. There will be a maximum annual contribution of £4,000 to which in the right circumstances a 25% bonus will be added. As you’d expect there is small print but many are predicting that this may be the model for pensions in the years to come.
  • Corporation Tax will be down to 19%
From 6 April 2018
  • The Self Employed will no longer pay Class 2 National Insurance. It’s tempting to think this has already happened as the regular Direct Debit collection ceased in July 2015 – the truth is that it is still paid but through Self Assessment.
From 6 April 2020
  • Corporation Tax will be down to 17% (And don’t forget the previously announced (see earlier reports)
  • Dividend Tax
  • Pension Relief restrictions
  • State Pension changes
  • Stamp Duty on second properties
  • Restriction on mortgage relief for rented properties
Auto-Enrolment

Have you heard the one about the Office of Tax Simplification! Try mentioning it to clients wrestling with pension Auto-Enrolment! Now we are into implementation we can see – red tape doesn’t get any tougher than this. Hundreds of thousands of schemes and millions of tiny (meaningless?) pension contributions. Ridiculous!

Digital Tax Account

There’s a revolution on its way! First announced in the April 2015 Budget, the Digital Tax Account will affect us all. Currently the legislators and the accounting profession are negotiating both on content and procedures. So there’s not a great deal of flesh on the bone but we can be sure that change is on its way. By 2020 the landscape is likely to be unrecognisable. For the interested, you can have a look at your early version Digital Tax Account now by going to www.HMRC.gov.uk and following the links to register. Where there was once pen and ink there will soon be Applications, User Names and Passwords (sounds familiar)!

The chart of new Rates and Allowances is, as always, set out below.

Rates and Allowances for 2016 and 2017

The chart of new Rates and Allowances is, as always, set out below. Probably the biggest change is the increase in Tax Free income (the Personal Allowance) from £9,440 to £10,000 in 2014-15. Did you think it was £10,500? Understandable if you did but that is next year’s Allowance (2015-16). The good thing for higher rate taxpayers is that the 40% threshold hasn’t been reduced (as it has been recently) in fact it has increased from £41,450 to £41,865. So a real benefit here for higher rate taxpayers. There’s a summary of Tax Rates below reflecting these changes.

 
2015-16
(£)
2016-17
(£)
Increase
(£)
Income tax allowances      
Personal allowance
Personal allowance for people aged 65-74
Personal allowance for people 75 and over
10,600
10,600
10,660
11,000
N/A
N/A
400
0
0
Income limit for under 65 personal allowance
 
Income limit for age-related allowances
100,000

27,000
100,000

N/A

0

0

Married couple’s allowance for people born before 6 April 1935

Minimum amount of married couple’s allowance

Blind person's allowance
8,355


3,220

2,290
8,355


3,220

2,290
0


0

0
Capital gains tax annual exempt amount:
Individuals etc
Trustees

Main rate 20%, Lower Rate 10%

11,000
5,500



11,100
5,550



0
0


Inheritance tax threshold
Main Rate 40%
325,000

325,000

0

Taxable bands 2015-16 (£)
Taxable bands 2016-17 (£)
Starting rate 10%
Starting rate 10%
Basic rate 20%
0 – 31,785
Basic rate 20%
0 – 32,000
Higher rate 40%
31,785 - 150,000
Higher rate 40%
32,001 - 150,000
Additional rate 50%
Over 150,000
Additional rate 45%
Over 150,000
 Income Tax rates April 2015-16 April 2016-17
Basic rate 20% 20%
Higher rate 40% 40%
Additional rate 45% 45%
Dividend ordinary rate - for dividends otherwise taxable at the basic rate
(effective rate with tax credit)
10%

(0%)
7.5%
Dividend upper rate - for dividends otherwise taxable at the higher rate
(effective rate with tax credit)
 32.5%

(25%)
32.5%
Dividend additional rate - for dividends otherwise taxable at the additional rate
(effective rate with tax credit)
37.5%

(30.6%)
38.1%
Dividend allowance
From April 2016, the new Dividend Allowance means that individuals will not have to pay tax on the first £5,000 of dividend income they receive.
N/A £5000
Personal savings allowance
From April 2016, the new Personal Savings Allowance means that basic rate taxpayers will not have to pay tax on the first £1,000 of savings income they receive.

Higher rate taxpayers will not have tax to pay on their first £500 of savings income.
N/A £1000





£500
 Starting rate for savings April 2015-16 April 2016-17
Starting rate for savings 0% 0%
Starting rate limit for savings £5000 £5000
Corporation tax profits 2016-17 (£)  
All profits - main rate 20%
Marginal relief N/A
National Insurance
 
2015/2016
2016/2017
Class 1 Employees
On first £155 pw Nil £155 pw Nil
Between £153 - £805 pw 12% £155 - £827 pw 12%
Over £815 pw 2% £827 pw 2%
Employee's contracted-out rate 1.4%   1.4%
Class 1 Employers
On first £155 pw Nil £156 pw Nil
Over £155 pw 13.8% £156 pw 13.8%
Employers' contracted-out rebate, salary related schemes 3.4%   3.4%
Employers' contracted-out rebate, money purchase schemes Abolished   Abolished
Class 2 Self employed
Flat rate £2.80 pw   £2.80 pw
Small earnings exception £5,965 pa   £5,965 pa
Special Class 2 rate for share fishermen £3.45 pw   £3.45 pw
Special Class 2 rate for volunteer development workers £5.60 pw   £5.60 pw
Class 3 Voluntary
 Flat rate £14.10 pw £14.10 pw
 Class 4 Self employed
On profits between £8,060 - £42,385
pa
9% £8,060 - £43,000
pa
9%
  above £42,385 2% above £43,000 2%
Stamp Taxes

Transfers of property (consideration paid)

Rate
All land in the UK
Rate
All land in the UK
  Residential   Additional residential property
Zero £0 – £125,000 3% £0 – £125,000
2% On the next £125,000 5% On the next £125,000
5% On the next £675,000 8% On the next £675,000
10% On the next £575,000 13% On the next £575,000
12% On the rest (above) £1,500,000 15% On the rest (above) £1,500,000
Previously, SDLT was charged at a single rate for the entire price of a property. From 4 December, SDLT is charged at increasing rates for each portion of the price.
Rate
All land in the UK
  Non Residential
Zero £0 – £150,000
1% £150,001 – £250,000
3% £250,001 – £500,000
4% £500,001 upwards
The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5% for 2014-15.
Value Added Tax (VAT)
  April 2015-16 April 2016-17
Standard rate 20% 20%
Reduced rate 5% 5%
Zero rate 0% 0%
Exempt n/a n/a
Value Added Tax (VAT) – Registration and Deregistration thresholds
  From April 2015 From April 2016
VAT - registration threshold 82,000 83,000
VAT - deregistration threshold 80,000 81,000