Budget 2016 - Headline Announcements
Budget 2016 - 'Britain fit for the future'
In addressing the country today in his Budget speech the Chancellor set out a number of attractive headline tax breaks. These measures he says will help make Britain fit for the future by lowering taxes on business and enterprise to create jobs and helping working people save and keep more of the money that they earn.
• Postpone where possible any sales of non-business assets (i.e. those not qualifying for Entrepreneurs’ Relief), apart from residential property interests,
until after 5 April 2016.
• Expedite where possible any acquisitions of residential property to avoid the additional 3% Stamp Duty Land Tax (SDLT) charge coming in on 1 April 2016.
• If you are planning on borrowing money from your company do it now before the tax on loans goes up from 25% to 32.5% from 1 April 2016.
• Bring forward the payment of company dividends where possible pre 6 April 2016 before the rate of Income Tax on dividends increases by 7.5%.
Personal tax and National Insurance Contributions (NICs)
• The personal allowance for Income Tax will increase from £10,600 to £11,000 from 6 April 2016, and will rise again to £11,500 in 2017.
• From 6 April 2016, individuals can earn up to £43,000 before paying higher rate (40%) tax. However from 6 April 2017 this higher rate threshold will rise to £45,000.
• The Government has confirmed its commitment to abolish Class 2 NICs from April 2018.
• A new £1,000 tax-free allowance will be introduced from April 2017 for certain income. One for selling goods or providing services and another for income from property that you own.
• There are significant increases to the appropriate percentages applicable for calculating company car and fuel benefit planned to take effect from 6 April 2019.
• From April 2018, employee termination payments in excess of £30,000 will be subject to Employers NIC.
• From 6 April 2016 the van benefit charge for zero-emission vans will increase from £nil to 20% of the charge for conventionally-fuelled vans i.e. £634 for 2016/17. This will then increase on a tapered basis from 6 April 2018 until from 6 April 2020 it is the same as for conventionally-fuelled vans.
• From 6 April 2016 employers can voluntarily opt to payroll car, van, car and van fuel and other benefits in kind, such as private medical insurance, for tax thereby removing the need for P11D reporting on these benefits. Non-cash vouchers and credit tokens are to be included in the framework from 6 April 2017.
Taxation of pensions and savings
• A new ‘Lifetime ISA’ is to be introduced from April 2017 whereby savers aged between 18 and 40 begin to can save up to £4,000 a year and receive a Government
bonus of 25% i.e. up to £1,000 a year until age 50, provided they keep the money in the ISA until age 60 or use it before then to purchase their first
• The overall ISA investment limit will increase from £15,240 to £20,000 from 6 April 2017.
• The Lifetime Allowance (LTA) for pension funds is to be reduced from £1.25 million to £1 million from 6 April 2016.
• Serious ill-health lump sums are to be able to be paid from a pension even though that pension has already been accessed. Where the pensioner in question has already reached 75 the lump sum will be taxable at their marginal rate of tax rather than at a flat rate of 45%.
• Where a member of a pension scheme has died, the treatment of beneficiaries of a dependent’s drawdown or flexi-access drawdown pension fund after age 23 is to be aligned with that of nominees of a deceased member of a pension scheme.
Capital Gains Tax (CGT)
• With effect from 6 April 2016 the higher rate of Capital Gains Tax will be cut from 28% to 20% and the basic rate cut from 18% to 10%. However these
reduced rates will not apply to disposals of residential property or the receipt of carried interest from investment funds.
• Finance Act 2015 (FA 2015) introduced new rules to combat the abuse of Entrepreneurs’ Relief (ER). However these rules also resulted in certain genuine ‘non-abusive’ arrangements being caught and relief therefore not being available, contrary to the policy objective. Some key measures have accordingly been introduced to counteract this. Contact us if you need more details.
• ER will be extended to external investors in unlisted trading companies.
Business tax including property businesses
• The Government has announced that all Enterprise Zones (EZs) will be entitled to 8 years of Enhanced Capital Allowances (ECAs) from the date that their
EZ status is announced.
• Sometimes commercial activity takes place in return for non-monetary consideration. The budget provides that non-monetary form consideration is still taxable at the arm’s length value of that non-monetary consideration.
• The Government had previously announced that the CT rate, currently 20%, would be reduced to 19% from 1 April 2017 and then further to 18% from 1 April
2019. Today the Chancellor announced that the rate will come down to 17% from 1 April 2019.
• The tax on loans to participators will increase to 32.5% from 1 April 2016 in line with the changes announced to the personal taxation of company dividends from 6 April 2016.
• From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates (the threshold is £6,000 or less under current rules). There will also be a tapered rate of relief on properties worth up to £15,000.
• From 1 April 2016 higher rates of Stamp Duty Land Tax (SDLT) will be charged on purchases of additional residential property in the form of a 3% surcharge,
which is aimed towards those purchasing second homes and buy-to-lets.
• SDLT for non-residential property is to move from the current ‘slab’ system, where tax is charged at a single percentage of the price paid based on the rate bracket within which the price falls, with effect from 17 March 2016. Instead it will move to a banded system which works in the same way as that which has been in place for residential properties since 4 December 2014.
• With effect from 17 March 2016 a new 2% rate will be introduced to apply to the portion of the net present value (NPV) in excess of £5m of the rent associated with a new leasehold transaction.
Value Added Tax (VAT) & Excise Duty
• HMRC to have new powers to require non-compliant overseas traders to appoint a tax representative in the UK and to hold online marketplaces jointly and
severally liable for the unpaid VAT of overseas businesses selling goods in the UK via their website.
• From 1 April 2016 the VAT registration threshold will increase from £82,000 to £83,000 and the deregistration threshold from £80,000 to £81,000.
Avoidance and evasion
Further anti-avoidance measures were announced, including:
The Government will introduce legislation to put beyond doubt that all loans or debts from a disguised remuneration scheme will be taxed as earnings if they have not already been fully taxed or repaid on or before 5 April 2019.
The Government will tackle the continued use of disguised remuneration schemes and the use of similar avoidance schemes, including any involving self-employment. Legislation will be introduced in the Finance Bill 2016 and retrospective action will be used where appropriate for any new schemes created following any of these changes.
Please click here for our full 2016 Budget
If you would like to discuss any of these matters or talk to us about your tax affairs in general, please contact our Tax Partners, Steve Crompton or Chris Barrington on the details below:
Partner – Head of Tax
direct dial: 01942 292541
mobile: 07790 840394
direct dial: 01942 292505
mobile: 07730 436070