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April 5, 2016
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Budget 2016 Summary

A summary of some of the changes announced by the Chancellor of the Exchequer in the 2016 Budget, published on 16 March 2016.

Income Tax

  • Increase in the personal allowance from £11,000 in 2016/17 to £11,500 in 2017/18, thereby ensuring that individuals working 30 hours a week on the National Minimum Wage will not be liable income tax.
  • Basic rate band threshold will increase from £31,785 to £32,000 for 2016/17, and to £33,500 in 2017/18. This means that by 2017/18, individuals earnings up to £45,000 will not pay tax at the higher rate.

Capital Gains Tax

  • Capital gains tax rates will be reduced from 18% to 10% for basic rate taxpayers, and from 28% to 20% for higher rate taxpayers. Gains on residential property or carried interest are excluded from this reduction and will continue to be taxed at 18%/28%.
  • Entrepreneurs’ Relief will be extended to external (i.e. non employee/director) investors in unlisted companies, provided that the newly issued shares acquired on/after 17 March 2016 are held for a minimum of three years.  This will be known as "Investor's Relief"
  • Entrepreneurs Relief will be restricted for joint venture/partnerships - this is to tackle structures aimed at securing ER for holdings of less than 5% by inserting a management company to hold several sub-5% holdings
  • Individuals who entered into an Employee Shareholder Status arrangement on or after 17 March 2016 will be subject to a lifetime limit of £100,000 on gains eligible for the capital gains tax exemption.

Business Tax & Rates

Business Tax

  • Corporation tax rates will be cut to 19% in April 2017, and 17% in April 2020.
  • Low value benefits in kind will be exempt from income tax and NICs, subject to a limit of £50 per benefit. Trivial benefits in kind provided to directors (or to members of their families) will be subject to an annual cap of £300.
  • From 1 April 2017, businesses will be able to relieve carried forward losses against profits from all income streams, and from other companies within a group.
  • Companies with profits exceeding £5m will be subject to a restriction of 50% to the amount of profits than can be offset through losses carried forward.
  • A  £1,000 annual allowance for sundry property income and a £1,000 annual allowance for 'odd jobs' and trade will be introduced.  Individuals with relevant incomes exceeding £1,000 can benefit by deducting the allowance instead of calculating their exact expenses.
  • Annual Investment Allowance will be fixed at £200,000
  • Non-resident individuals will be liable to tax on property development in the UK
  • The loans to participators tax rate will be increased from 25% to 32.5% on all loans granted from 6 April 2016, keeping it aigned with the higher rate of tax charged on dividend income.
  • Rules that seek to tax transactions that are capital (on the face of it) as income will be amended, with a focus on liquidations where the owners continue in the same trade.

National Insurance Contributions

  • From April 2018, employer National Insurance Contributions will be due on termination payments exceeding £30,000.
  • Increase in the Employment Allowance for National Insurance Contributions to £3,000 from April 2016.
  • Class 2 National Insurance Contributions (£2.80 per week) will be abolished for self-employed individuals from April 2018.

Business Rates

  • The Small Business Rate Relief will be doubled from 50% to 100% for businesses with a property with a value of £12,000 and below. Businesses with a property with a rateable value between £12,000 and £15,000 will receive tapered relief.
  • The threshold for the application of the standard business rate multiplier will be increased to £51,000.

Stamp Duty Land Tax (SDLT)

  • From 17 March 2016, SDLT on the purchase of commercial property will be charged using a slice system, rather than the previous ‘slab’ structure. The change means that when a commercial property passes a threshold, the higher rate applies insofar as the value passes the threshold, as opposed to SDLT becoming chargeable on the full purchase price.
  • The SDLT surcharge on residential property will apply to ‘significant investors’ (i.e. own 15 or more properties) and corporate structures as well as individuals.

Miscellaneous

  • ISA allowance will rise from £15,240 to £20,000 in April 2017.
  • Introduction of the Lifetime ISA which will enable adults under 40 to receive a 25% bonus on every pound saved, up to a limit of £4,000 each year. Funds can be used to buy a first home or save for retirement.
  • Introduction of a sugar levy on sugar-sweetened soft beverages (excluding fruit juices and milk drinks).
  • VAT registration threshold will be increased to £83,000 from 1 April 2016.
Contact us today to discuss your tax requirements.
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