The Budget 2016: Headlines
Mr Osborne’s third Budget in the space of a year included a number of re-announcements from his Autumn Statement, but there were a few surprises.
Lifetime ISAs
From April 2017, adults under 40 will qualify for a new Lifetime ISA. The maximum annual contribution will be £4,000 to which the government will add a 25% bonus (so a £100 contribution will become £125 in the plan).
You can use the funds, including the bonus, to buy a first home at any time from 12 months of opening the account. Or you can withdraw the funds tax free from age 60 for use in retirement. Withdrawals can be made at any time for other purposes, but you’ll forfeit the bonus element plus any interest or growth, and face a 5% charge.
At the same time the total amount you can save each year in an ISA will be increased from £15,240 to £20,000.
Personal allowance
The Personal Allowance (the amount of income you can earn before you start paying Income Tax) will increase to £11,500, and the higher rate threshold will rise to £45,000 in April 2017.
The Dividend Allowance
This was a surprise announcement in last year’s Summer Budget and also begins in 2016/17. The allowance will mean that the first £5,000 of dividends you receive in a tax year will not be subject to any further tax, regardless of your marginal tax rate. The existing 10% dividend tax credit disappears from 6 April 2016.
Capital Gains Tax
From 6 April 2016 most rates will be cut by 8% so gains will generally be taxable at 10% to the extent they fall in the £32,000 wide basic rate band (2016/17) and 20% if they fall into the higher or additional rate bands. However, for gains on residential property (eg. Buy to Let) and carried interest the 2015/16 tax rates of 28% and 18% will continue to apply. The capital gains tax annual exemption for 2016/17 will remain unchanged at £11,100.
National Insurance
From April 2018 employers will need to pay National Insurance contributions on pay-offs (for example, termination payments) above £30,000 where Income Tax is also due.
Class 2 National Insurance contributions (NICs) for self-employed people will be scrapped from April 2018 and they will only need to pay one type of National Insurance on their profits, Class 4 NICs.
After April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.
New tax allowances for money earned from the sharing economy
From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one on income from property you own.
People who make up to £1,000 from occasional jobs – such as sharing power tools, providing a lift share or selling goods they have made – will no longer need to pay tax on that income.
In the same way, the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free.
Corporation Tax
The main rate of Corporation Tax has already been cut from 28% in 2010 to 20%, the lowest in the G20. It will be cut again to 17% in 2020, benefitting over 1 million businesses.
Business rates
From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. There will be a tapered rate of relief on properties worth up to £15,000. This means that 600,000 businesses will pay no rates.
Stamp duty rates for commercial property
New rates and tax bands are 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000.
Buyers of commercial property worth up to £1.05 million will pay less in stamp duty.
Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. For specific tax advice please speak to your accountant or tax specialist.
Contains public sector information licensed under the Open Government Licence v3.0.
