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 |
| 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% |
|
325,000 100,000 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 |