The 2016 Budget took place on Wednesday March 16. You
may download the Budget Guide 2016 and Budget 2016 Tax
Rates & Allowances docs that will provide valuable
reference material for tax year 2016-17.
You will find the .pdf on our downloads page
ISAs: From Autumn 2015 any Cash ISA investor has been able to withdraw money from the ISA and repay it during the same tax year without the repayment counting toward the ISA subscription for that year. The list of qualifying investments for ISAs (and Child Trust Funds) will be extended - to watch.
The proposed scheme for first-time buyers will provide a bonus to each person who has saved into a Help-To-Buy ISA; for each 200 gbp saved the Government will provide a 50 gbp bonus (25% extra) to a maximum of 3k gbp on 12k gbp savings. For all areas outside London, this will be available on home purchases to 250k gbp
Interest: Interest on Savings: The first 1k gbp interest on savings will be tax free in tax year 2016-17, though this is restricted to the first 500 gbp for higher rate taxpayers.
Pensions: The current lifetime allowance (maximum available for pension relief) is 1.25m gbp, but has reduced to 1m gbp from April 2016. The annual allowance remains at 40k gbp for 2016-17.
From April 2017 there is a facility for each owner to sell their annuity, and either take the proceeds directly or draw them over a number of years. Income will be taxed at the individual's marginal tax rate.
From 06 April 2015 beneficiaries of persons who die before reaching 75 with a joint life or guaranteed annuity have been enabled to receive future annuity payments tax free where they have not received any such payment pre 06 April 2015; where the individual died aged 75 or above then the beneficiary pays tax at their marginal rate.
Personal Allowances: The personal allowance (PA) is set at 10,600 gbp for everyone born after 05 April 1938, and at 10,660 gbp for those born on or before that date.
The married couples allowance (MCA) rises to 8,335 gbp where at least one of the couple was born pre 06 April 1935, but the allowance remains at 10% only.
Inheritance Tax: An additional allowance will be introduced from 2017-18 of 100k gbp rising to 175k gbp by 2020-21.This increases the Nil Band from 325k gbp to an effective 500k gbp, so with the transferred full allowance from a deceased spouse this could provide a 1m gbp allowance against IHT. But this is only for family homes and will not affect those without such in their estate. There is a provision for individuals or couples to downsize their homes without losing the allowance.
Dividends (Investors): The long standing system of dividends that investors received with tax credits attached has been replaced. From 2016 the tax credit system is scrapped, and instead the first 5k gbp of dividends an investor receives will be tax free; thereafter there will be 3 levels of tax at 7.5%, 32.5%, and 38.1% corresponding to basic rate, higher rate, and additional rate bands. For most this will make little change, but the reform will increase top rate taxpayers contributions by about 25%.
Vehicle Excise Duty: To address
falling receipts as many new cars pay little or no road tax
because of their low carbon emissions, from April 2017 a
banding system pegged to emissions will be introduced, with
receipts dedicated to improving the UK road network.
First year rates will depend on carbon dioxide emissions, but after that all cars will attract a standard rate of 140 gbp except zero emission vehicles. Cars with a list price over 40k gbp will attract a supplementary charge of 350 gbp per year for 5 years.
Digital Tax Accounts: It is planned to phase out the Self Assessment tax return in favour of digital tax accounts for taxpayers that will be populated by individuals uploaded personal financial information. This will enable people to pay income tax at any time of the year, and to do this by spreading payments by instalments.
Capital Allowances: The current annual investment allowance (AIA) available for the purchase of mainstream capital expenditure (capex) to provide effective 100% relief against business trading profits came into play on 01 January 2016 at 200k gbp as a permanent measure. Transitional rules apply for accounting periods spanning 01 January 2016.
R&D Tax Credits: From April 2015, small and medium enterprises (SMEs) undertaking R&D activity have been able to reduce their corporation tax bill by up to 230% e.g. an additional 130 gbp deduction can be claimed for tax purposes on top of 100 gbp spent on R&D (formerly 225%).
Loss making SMEs may surrender their loss and receive tax relief by way of credits, amounting to a cash refund from HMRC of 33.35 gbp for every 100 gbp spent on R&D.
There are voluntary advanced assurances for small businesses making their first claims from Autumn 2015 i.e. HMRC gives upfront assurances where satisfied that the relevant activities do qualify for R&D relief, so that businesses may assume their claims will be effective at least for the next 3 years.
National Insurance Contributions: The employment allowance enabling employers to deduct up to 3k gbp per annum from their Class 1(employer) NI contributions continues in tax year 2016-17. The abolition of employers contributions for under 21s was effective from April 2015, and those for apprentices under 25 became effective April 2016. Note the employment allowance is unavailable for companies where the director is the sole employee.
Property Allowances: Tax relief on Buy-To-Let (BTL) will be restricted to cover only the basic rate of income tax. Relief for higher rate taxpayers will be withdrawn gradually over a 4-year period from 2017. The former wear and tear allowance (normally 10% of rental income) has been withdrawn, with the new relief limited to allowing for the actual costs of replacing furnishings put in place from April 2016.
Dividends (Owner Directors): As described above, the reform to dividends impacts on investors with significant portfolios, but also places a higher tax burden on small company owner / directors. Many utilise the current tax credits in full to avoid personal tax on distributions. Under the new system, there will be a tax liability of around 1.7k gbp for those making full use of the tax credit (dividends about 38k gbp) in tax year 2016-17.
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