We are pleased to set out below some of the highlights from today’s budget. This is not intended to be a detailed commentary which will follow in due course. The comments below are intended to announce the changes and should not be construed as advice. Please do not make any decisions in respect of the items below without obtaining specific advice from us.
The personal allowance will increase to £11,500 in April 2017, as well as the threshold at which individuals pay tax at the higher rate of 40% which will rise from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.
The Lifetime ISA
The government wants to help young people save flexibly for the long term and ensure they do not have to choose between saving for retirement and saving for their first home. The budget announced that from 6th 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.
Whilst the first £30,000 of payments made after the termination of an employment will remain tax free, payments in excess of £30,000 will now not only be subject to income tax as normal but also subject to National Insurance contributions payable by the employer. This will be imposed from April 2018.
Capital Gains Tax
Capital gains tax is to be cut from the current 28% down to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers from April 2016. There will be an additional 8% surcharge to be paid on gains arising on residential property and carried interest. CGT on residential property does not apply to your main home, only to additional properties.
Following the draft legislation issued at Autumn Statement 2015, the government has finalised the rules that determine when asset managers can pay capital gains tax rather than income tax on their performance related returns (“carried interest”). These new rules ensure that carried interest will be taxed as a capital gain only when the fund undertakes long term investment activity (with investment horizons longer than 3 years).
Class 2 National Insurance
Class 2 National Insurance contributions will be abolished from April 2018 which is normally paid by self-employed individuals at £2.80 per week if they make profits of £5,965 or over per year.
Loans to Participators
The loans to participators rules aim to prevent owners of closed companies avoiding Income Tax and National Insurance contributions by remunerating themselves through loans or advances that are not repaid, rather than taking dividends or salary. Budget 2016 announced an increase in the rate of tax payable by closed companies under the loans to participators rules so that it continues to mirror the higher rate of dividend tax. The loans to participators tax rate will be increased from 25% to 32.5% in April 2016, with the effect of loans advances and arrangements made on or after 6 April 2016. Loans to Participators.
The main rate of corporate tax rate will fall from the current 20% down to 17% by 2020. This will mean the UK will have the lowest rate of tax on profits in the G20!
There will be two changes regarding the loss relief which will come into force from April 2017. The first reform will give more flexibility to losses arising after April 2017 which will make it possible for companies to offset losses, when carried forward, against profits from other income streams or other companies within a group. The second reform will restrict the amount of losses companies will be able to offset against their profits above £5 million to 50%. This change will also come into force from April 2017.
Small Business Rate Relief
New threshold for small business rate relief will increase from the current £6,000 to a maximum of £15,000, and increasing the higher rate from £18,000 to £51,000 which will come into effect in April 2017.
Premium Stamp Duty Land Tax (SDLT) on Non-Residential Property
With effect from midnight tonight the rates of SDLT on the purchase of freehold non-residential property, or the acquisition of leasehold interests in non-residential property will be charged at new rates as set out below:-
|Freehold purchases and lease premiums|
|Old rate||New rate|
|Purchase price or lease premium||%||%|
|£0 – £150,000||0||0|
|£150,001 – £250,000||1||2|
|£250,001 – £500,000||3||5|
|On NPV of the rent payable over the life of the lease|
|Old rate||New rate|
|£0 – £150,000||0||0|
|£150,001 – £5,000,000||1||1|
Should you have any queries or questions in respect of the above, or the Budget generally, please do not hesitate to contact us.
Chandni – firstname.lastname@example.org
Irina – Irina.email@example.com
Justin – Justin.firstname.lastname@example.org
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.