March 2016 Budget Summary
Mar 18, 2016
Budget & Autumn Statement
This is a basic summary of the main headline points which the Chancellor covered in his March 2016 Budget. One of his main themes was to ensure that the next generation inherits a strong economy, is better educated, and grows up fit and healthy. He stressed his prudence in concentrating on debt repayment, although he acknowledged that there were numerous factors that could impact on his “bullish” growth forecasts and promises of future budget surpluses. The Chancellor hinted that there could be further changes to pensions, but not for the time being.
The basic personal allowance for 2016/17 will be £11,000. This will increase to £11,500 for 2017/18.
The 40% higher rate threshold for 2016/17 will be £43,000, which will increase to £45,000 for 2017/18.
The 45% top rate continues to apply to taxable income over £150,000 for 2016/17.
Remember that if your adjusted net income exceeds £100,000, the personal allowance is reduced by £1 for every £2 over £100,000, giving an effective rate of 60% on income between £100,000 and £122,000 for 2016/17.
Personal Savings Allowance
A basic rate taxpayer will be able to receive up to £1,000 of interest per year tax free on their savings.
A higher rate taxpayer will be able to receive up to £500 of interest per year tax free on their savings.
An additional rate tax payer will not have a Personal Savings Allowance.
Any amount received above these limits will be charged at the marginal rate. As a result of these changes banks and building societies will pay interest gross from 6 April 2016.
From 6th April tax is payable on dividends over £5,000 at the following rates:
7.5% on dividend income within the basic rate band
32.5% on dividend income within the higher rate band
38.1% on dividend income within the additional rate band
Dividends received by basic rate taxpayers are effectively tax free up to 5 April 2016.
Wear and tear allowance on furnished let property
From 5 April 2016 wear and tear allowance will be replaced by the renewals basis, whereby deductions will only be available on the replacement of white goods and furniture in rental property. Capital allowances for furnished holiday lets will not be affected.
Stamp Duty increase
An additional Stamp Duty of 3% will apply to the purchase of second residential properties worth over £40,000, when the transaction takes place on or after 1 April 2016. This includes second homes, buy-to-lets and furnished holiday accommodation.
VAT registration limit
The VAT registration turnover limit will increase to £83,000 from 1 April 2016. The deregistration limit will now be £81,000.
Capital Gains Tax
Capital Gains Tax rates will be reduced from 18% to 10% for a basic rate taxpayer and from 28% to 20% for a higher rate taxpayer. This reduction will not apply to the chargeable gains on residential property where the rates will remain at 18% and 28% respectively.
From 6 April 2017 an additional residence IHT nil-rate band will be available to individuals who wish to leave their main residence to their direct descendants. There will be additional legislation to take into account situations where downsizing to a less valuable property has occurred.
The main rate of corporation tax is 20%. From April 2017 this will reduce to 19%, and from April 2020 it will fall to 17%.
Restriction on mortgage interest deduction
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their rental profits. From April 2017 mortgage interest relief on second homes will start to be gradually restricted as follows:
|2017/18||75% allowed||25% basic rate|
|2018/19||50% allowed||50% basic rate|
|2019/20||25% allowed||75% basic rate|
|2020/21||Nil||100% basic rate|
New Lifetime ISAs
From April 2017, any adult under 40 will be able to open a new Lifetime ISA for the purchase of their first home. Up to £4,000 can be saved each year and the government will pay in a 25% bonus on these contributions at the end of the tax year. The funds, including the government bonus, can be withdrawn from the Lifetime ISA from age 60 for any other purpose.
The current £15,240 ISA limit is frozen for 2016/17, but will increase to £20,000 from 6 April 2017.
Changes to pensions
Despite much speculation about further major changes to pensions, such as taxing the lump sum and limiting tax relief, these did not materialise.
People with defined contribution schemes who are at least 55 years old can make withdrawals up to the value of the funds invested in the scheme. The first 25% will be tax free. An individual who makes a withdrawal will be restricted to making future pension contributions of no more than £10,000.
If your pension fund is worth more than the lifetime allowance you will pay tax on it. The lifetime allowance is reducing from £1.25m to £1m from 6 April 2016.
The NIC employment allowance increases to £3,000 from £2,000, but can now no longer be claimed by single director companies.
Benefits in Kind
Employee trivial benefit exemption is to be set at £50 per employee per benefit. Directors, their families and other office holders of close companies have an annual cap of £300.
Personal Service Companies
Workers engaged through a personal service company will no longer get tax relief for travelling from home to a temporary workplace.
The government will introduce in Finance bill 2017 legislation that will move the liability to pay the correct employment taxes from a worker’s own company to the public sector body or agency/third party paying the company.
Directors overdrawn loan account tax increase
Where a “close” company controlled by 5 or fewer shareholders (participators) makes a loan to one of those persons, the company is required to pay tax to HMRC. The rate of this tax increases from 25% to 32.5% from 6 April 2016, in line with the dividend rate for higher rate taxpayers.
From April 2016 the period over which farmers can average their profits will be increased from two years to five years.
New Property and Trading Income Allowance
From April 2017 there will be a new Property & Trading Income (turnover before deducting expenses) Allowance of £1,000. This means that individuals will not need to declare or pay tax if their income is below this amount. Individuals whose property or trading income is above £1,000 can choose either to deduct the £1,000 allowance from their trading income and be taxed on the balance, or to calculate their profits in the usual way of trading income less actual expenses, therefore working in a similar way to rent-a-room relief.
If you have questions or concerns about any of the areas covered in this summary, please do get in touch and we’ll be happy to help.