The Chancellor of the Exchequer, George Osborne, delivered his eighth Budget speech on Wednesday 16 March, his third in 12 months. Now that we’ve had time to take stock of the key announcements, we consider how they could impact your finances both today and in future years.
The Personal Allowance will increase to £11,500, and the higher-rate threshold will rise to £45,000 in April 2017
The Personal Allowance is the amount of income you can receive before you start paying Income Tax. This increased to £11,000 for 2016/17, and will increase further to £11,500 in April 2017. The point at which you pay the higher rate of Income Tax increased from £42,385 to £43,000 in 2016, and will increase to £45,000 in April 2017.
Lifetime Individual Savings Account (LISA): a new £4,000 LISA that you can use to save for retirement or to buy your first home
From April 2017, any adult under 40 will be able to open a new Lifetime ISA (LISA). Up to £4,000 can be saved each year, and savers will receive a 25% bonus from the Government on this money.
Money put into this account can be saved until someone is over 60 and used as retirement income, or can be withdrawn to help purchase a first home. The total amount an adult can save each year into all ISAs will increase from £15,240 to £20,000 from April 2017.
New Help to Save scheme
A new Help to Save scheme is to be launched for people on low incomes, providing a 50% government bonus on up to £50 of monthly savings.
New tax allowances for money earned by ‘micro-entrepreneurs’
From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one for income from property you own. People who make up to £1,000 from occasional jobs will no longer need to pay tax on that income. In the same way, the first £1,000 of income from property will be tax-free. The introduction of these new allowances should help simplify taxation in the sharing economy.
Capital Gains Tax rates cut from 6 April 2016, but residential property is still taxed at current rates
Capital Gains Tax (CGT) is a tax on the gain you make when you sell something (an ‘asset’) that has gone up in value. It is paid at a basic or higher rate depending on the rate of Income Tax you pay. From April 2016, the higher rate of CGT has been reduced from 28% to 20%, and the basic rate from 18% to 10%. There is an additional 8% surcharge paid on residential property and carried interest (the share of profits or gains that is paid to asset managers). CGT on residential property does not apply to your main home, only to additional properties (for example, a flat that you let out). Further details are to follow, but this enables investors to benefit by realising the profit on the sale of shares and other assets at the reduced rate of tax.
Insurance Premium Tax (IPT) will be increased by 0.5%
Insurance Premium Tax (IPT) increased by 0.5%, making the tax 10%. IPT is the amount insurers are taxed, which they then pass on to consumers. In July 2015, Mr Osborne announced an increase in the tax from 6% to 9.5%, which took effect in November 2015 this year. Among other things, IPT is charged on medical insurance.
Corporation Tax will be cut to 17% in 2020
The main rate of Corporation Tax will be cut again to 17% in 2020.
Employers will pay National Insurance on pay-offs above £30,000 from April 2018
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. For people who lose their job, payments up to £30,000 will remain tax-free, and they will not need to pay National Insurance on any of the payment.
Class 2 National Insurance contributions (NICs) for self-employed people will be abolished from April 2018
Currently, self-employed people have to pay Class 2 NICs as well as Class 4 NICs if they make sufficient profit. From April 2018, if you are self-employed you will need to pay only one type of National Insurance on your profits: Class 4 NICs. Paying Class 2 NICs currently enables self-employed people to build entitlement to the State Pension and other contributory benefits. After April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.
Extension of Entrepreneurs’ Relief
Previously, a disposal of shares in a qualifying company only attracted Entrepreneurs’ Relief (ER) when the individual was an employee and owned at least 5% of the share capital and voting rights for the 12-month period prior to the sale of the shares. ER will now be extended in the form of investors’ relief to external investors purchasing newly issued shares in unlisted trading companies on or after 17 March 2016 that are held for a period of at least three years from 6 April 2016. Investors’ relief will be subject to a lifetime cap of £10m.
Cutting business rates for all ratepayers
From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. Currently, this 100% relief is available if you’re a business that occupies a property, for example, a shop or office with a value of £6,000 or less. There will be a tapered rate of relief on properties worth up to £15,000.
Tax avoidance crackdown
Plans have been laid out to raise £12bn by the end of this Parliament through a package of measures to target tax avoidance. The Government will introduce new measures to tackle disguised remuneration and make sure UK tax is paid on property development. The Treasury will seek to introduce Capital Gains Tax on performance rewards and limit exempt gains, as well as introducing new measures to limit the ability of individuals to work as ‘personal service companies’.