The Chancellor delivered a “Budget for the Next Generation”, promising long term solutions for long term problems.
Here is a summary of the key tax measures:
- The personal allowance will be £11,000 for 2016/17, increasing to £11,500 for 2017/18.
- The higher rate tax threshold will be £43,000 for 2016/17, increasing to £45,000 for 2017/18.
- The ISA allowance will increase from £15,240 to £20,000 from April 2017 for all taxpayers.
- A new Lifetime ISA, available to adults under the age of 40, will be introduced from April 2017. This will enable up to £4,000 to be saved each year with the government providing a top-up bonus of 25p for every £1 saved. The intention is that the funds can be withdrawn by the saver to purchase a first home or kept for retirement where the funds could be accessed from the age of 60 onwards without loss of the government bonus.
- From April 2018, the government will tighten the rules around the income tax treatment of termination payments to prevent manipulation of the £30,000 exemption. From the same date, termination payments in excess of £30,000 will be liable for employer’s and employee’s National Insurance Contributions. These sums are already subject to income tax.
- The government is concerned about the growing use of salary sacrifice arrangements and will consider whether to limit the range of benefits which can provide income tax and national insurance savings when they form part of a salary sacrifice scheme. However, it is the intention that pension savings and childcare and health-related benefits could still be provided through salary sacrifice arrangements and continue to attract income tax and national insurance advantages.
- A new lifetime limit of £100,000 has been introduced on gains which can qualify for capital gains tax exemption under the Employee Shareholder Status rules. This limit will only apply to new arrangements entered into on or after 17th March 2016; existing arrangements will not be subject to the limit.
- The corporation tax rate will be reduced to 17% from 2020. The rate is currently 20% and is already scheduled to reduce to 19% from 2017.
- Corporation tax payment dates will be accelerated for companies with taxable profits in excess of £20 million. These companies will now be required to pay their tax instalments in the 3rd, 6th, 9th and 12 months of the year.
- The loss relief rules for companies will be modernised to allow for more flexible use of business losses. From 1st April 2017, companies will be able to use brought forward trading losses against profits and income from other sources and/or against profits and income arising in other group companies. However, from the same date, loss relief will be restricted for companies with taxable profits in excess of £5 million – losses brought forward will only be able to be offset against 50% of the profits in excess of £5 million.
- New rules will cap the tax relief for interest paid by companies to 30% of its taxable UK earnings or on a net interest to earnings ratio for a worldwide group.
- The withholding tax rules on royalty payments will be amended to bring all international royalty payments arising in the UK within the scope of UK income tax, subject to the terms of double taxation agreements and EU directives.
- The rate of tax payable by a close company when it makes a loan to a shareholder will increase from 25% to 32.5%.
- Class II National Insurance Contributions will be abolished from April 2018.
- Two new reliefs will be introduced for “micro-entrepreneurs” from April 2017. There will be a £1,000 allowance for trading income and a separate £1,000 allowance for property income. Individuals receiving income below these limits will not be required to declare or pay tax on the income. Individuals receiving income above these limits can decide whether to claim tax relief for actual expenditure incurred or, instead, to simply deduct the allowance from their income.
The government will launch a consultation on the tax treatment of partnerships.
- The rates of capital gains tax will be reduced for disposals taking place on or after 6th April 2016. The new rates are:
- Basic rate taxpayers 10% (reduced from 18%)
- Higher rate taxpayers 20% (reduced from 28%)
- The reduced rates will not apply to gains on the disposal of residential property or carried interests.
- Various changes will be made to the entrepreneurs’ relief rules to reverse or relax some of the restrictions to the relief introduced over the last 18 months. These include:
- Entrepreneurs’ relief will be available on the disposal of a privately owned asset under the “associated disposal” rules where the related “material disposal” involves a disposal of business assets to a family member.
- Entrepreneurs’ relief will be available on gains on goodwill when a business is transferred to a close company, subject to meeting various conditions.
- The government will allow entrepreneurs’ relief to be claimed in some cases involving joint ventures and partnerships where the minimum 5% shareholding requirement is not fulfilled.
- The government intends to review the definition of “trading company” to ensure that the relief operates as intended.
Entrepreneurs’ relief will be extended to “long term” investors in unlisted companies. The extended relief will only apply to newly issued shares in unlisted companies which are purchased on or after 17th March 2016 and which are held for a minimum of three years from 6th April 2016. It will, however, have its own lifetime limit of £10 million. This will be in addition to the current lifetime limit of £10 million which applies to the disposal of assets that qualify for entrepreneurs’ relief under the existing rules.
- Stamp Duty Land Tax (SDLT) on non-residential property transactions will move from the “slab” system to a “slice” system so that SDLT will be payable on the element of the purchase price that falls within each tax band. For acquisitions occurring on or after 16th March 2016 the new rates will be:
- £0 - £150,000 0%
- £150,001 - £250,000 2%
- More than £250,000 5%
- There will also be a new 2% SDLT rate for leasehold rent transactions where the net present value of the rental payments exceeds £5 million.
Scottish Land and Buildings Transaction Tax
Rates for Scottish Land and Buildings Transaction Tax (LBTT) can be found here:
- The VAT registration threshold will increase to £83,000 with effect from 1st April 2016.
- A new Sugar Levy will be introduced for the soft drinks industry. Tax raised by the new levy will be used to fund additional sport and a wider range of after school activities for primary school children and to provide funding to expand the availability of breakfast clubs.
- Insurance premium tax will increase by 0.5% to 10% from 1st October 2016.
- Fuel duty is frozen.
- Duty rates on beer, cider and spirits are frozen.
- The Carbon Reduction Commitment will be abolished from 2019 but the Climate Change Levy will be increased from 2019 with the intention that, overall, the measures taken together will be fiscally neutral.
- Petroleum Revenue Tax will be effectively abolished and the Supplementary Charge will be reduced from 20% to 10%.
Click here to read our full Budget response.