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Budget Comment March 2017

This is my last Spring Budget Report!

From now on the Budget will be presented in the Autumn (replacing the Autumn Statement) and in 2018 there will be a Spring Statement (replacing the Spring Budget).

There was no major drama in this year’s Spring Budget. But with an array of changes spanning several years, let’s stick with the date driven report, documenting the changes (some of which were announced in previous Budgets):

From 6 April 2016
  • Looking back, probably the biggest and most surprising Budget change of recent times 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 was an unexpected bonus for the few that are affected! It hasn’t been changed.
From 6 April 2017
  • The annual ISA Allowance increases to £20,000.
  • There will be a 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 (with the increasing restrictions on pensions – see below) ISAs may be the model for pensions in the years to come.
  • Higher rate tax relief on loan interest starts to be phased out (over 4 years) for residential property landlords.
  • The Inheritance Tax Main Residence Nil Rate Band begins to be phased in where the property is left to direct descendants – the allowance starts at £100,000 increasing to £175,000 but it is phased out rapidly where estates exceed £2,000,000.
  • Corporation Tax will be down to 19%.
  • Carried forward Trading losses in Limited Companies can be utilised more widely (against other income and gains).
  • It will become more difficult for Public Sector organisations (and all organisations?) to pay ‘freelance’ suppliers when all concerned know that they should really be on the payroll (remember that the old ‘IR35’ implied employee rules still apply across the board).
  • The (rather arbitrary) 10% tax free exemption on overseas pension income is scrapped. Recipients will now pay tax on 100% of this income
  • Significant restrictions to the Flat Rate VAT Scheme come in (actually from 1 April 2017). Roughly speaking the changes remove the benefit of Flat Rate from suppliers of services.
  • New Deemed Domicile rule commences for all of the taxes. Any individual who has been resident in the UK for at least 15 out of the last 20 years will be deemed as domiciled in the UK.
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.
  • There will be a 1% increase to Class 4 National Insurance for the self-employed. No there won’t – the Chancellor backed down on this (very reasonable) change in the light of media hysteria!
  • The Dividend Allowance will fall from £5,000 to £2,000. This is the amount of dividend that an individual can receive without having to pay additional personal tax.
  • Termination payments (when leaving employment) will come under greater scrutiny with legislation to tighten and clarify the Income Tax and National Insurance treatment.
From 6 April 2020
  • Corporation Tax will be down to 17%
Special mention for Pensions

This is an increasingly complex area for which we recommend specialist advice but there are a few things to look out for:

  • Personal Pension Annual Allowance is £40,000 (with potential bring forward of earlier years unused allowance) providing you have earned income of at least this level.
  • If your total income exceeds £150,000 the Annual Allowance tapers down to £10,000.
  • There is a further restriction for those who have taken flexible benefits from a Money Purchase Pension Scheme. These people can only contribute £10,000 per annum reduced to £4,000 from 6 April 2017!
  • The Lifetime Allowance is now down to £1,000,000.
  • Accessing funds has become more flexible.
And don’t forget the previously announced (see earlier reports)
  • 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! We are deep into implementation stage for our clients and we can confirm – red tape doesn’t get any tougher than this. Hundreds of thousands of schemes and millions of tiny (meaningless?) pension contributions. I said it was ridiculous in the 2016 Report – it still is!

Making Tax Digital

There’s a revolution on its way! Where there was once pen and ink there will soon be Applications, User Names and Passwords! First announced in the April 2015 Budget, making Tax Digital will affect us all. There is still a way to go before we know all the details but see the Making Tax Digital section here.

Rates and Allowances for 2017 and 2018

Rates and allowances for Income Tax, Corporation Tax, Capital Gains Tax, and Inheritance Tax are set out below.

 
2016-17
(£)
2017-18
(£)
Increase
(£)
Income tax allowances      
Personal allowance
Personal allowance for people aged 65-74
Personal allowance for people 75 and over
11,000
N/A
N/A
11,500
N/A
N/A
500
0
0
Income limit for under 65 personal allowance
 
Income limit for age-related allowances
100,000

N/A
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
8,445


3,260

2,320
90


40

30
Capital gains tax annual exempt amount:
Individuals etc
Trustees
Main Rate
Lower Rate
Main Rate (for gains on residential property)
Lower Rate (for gains on residential property)

11,100
5,550
20%
10%
28%
18%

11,300
5,650
20%
10%
28%
18%

200
100




Inheritance tax threshold
Nil rate band limit
Residential nil rate band limit
Main Rate 40%


325,000

40%


325,000
100,000
40%
0

Taxable bands 2016-17 (£)
Taxable bands 2017-18 (£)
Starting rate 10%
Starting rate 10%
Basic rate 20%
0 – 32,000
Basic rate 20%
0 – 33,500
Higher rate 40%
32,000 - 150,000
Higher rate 40%
33,501 - 150,000
Additional rate 45%
Over 150,000
Additional rate 45%
Over 150,000
 Income Tax rates April 2016-17 April 2017-18
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)
7.5%

7.5%
Dividend upper rate - for dividends otherwise taxable at the higher rate
(effective rate with tax credit)
 32.5% 32.5%
Dividend additional rate - for dividends otherwise taxable at the additional rate
(effective rate with tax credit)
38.1%
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.
£5000 £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.

£1000




£500

£1000




£500
 Starting rate for savings April 2016-17 April 2017-18
Starting rate for savings 0% 0%
Starting rate limit for savings £5000 £5000
Corporation tax profits 2016-17 (£)  
All profits - main rate 20%
N/A
Marginal relief N/A
N/A

The main rate of corporation tax for 2017-18 will be 19%.

National Insurance
 

2016/2017

2017/2018
Class 1 Employees
On first £155 pw Nil £157 pw Nil
Between £155 - £827 pw 12% £157 - £866 pw 12%
Over £827 pw 2% £866 pw 2%
Class 1 Employers
On first £156 pw Nil £157 pw Nil
Over £156 pw 13.8% £157 pw 13.8%
Employers' contracted-out rebate, salary related schemes N/A   N/A
Employers' contracted-out rebate, money purchase schemes Abolished   Abolished
Class 2 Self employed
Flat rate £2.80 pw   £2.85 pw
Small earnings exception £5,965 pa   £6,025 pa
Special Class 2 rate for share fishermen £3.45 pw   £3.50 pw
Special Class 2 rate for volunteer development workers £5.60 pw   £5.65 pw
Class 3 Voluntary
 Flat rate £14.10 pw £14.25 pw
 Class 4 Self employed
On profits between £8,060 - £43,000
pa
9% £8,164 - £45,000
pa
9%
  above £42,385 2% above £45,000 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 17 March 2017, SDLT is charged at increasing rates for each portion of the price.

Rate
All land in the UK
  Non Residential
Zero £0 – £150,000
2% £150,001 – £250,000
5% £250,001 – 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 2016-17 April 2017-18
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 2016 From April 2017
VAT - registration threshold £83,000 £85,000
VAT - deregistration threshold £81,000 £83,000