Ercan Demiralay FCCA explains the key developments from the Budget 2016 affecting your business and personal finances that you should be aware of.
This was George Osborne's eighth Budget and his fourth announcement (including the Autumn Statement) in the last 12 months. There were some clear central themes to his speech including Britain being better off in the EU, long term initiatives for the next generation and backing for small businesses.
Whether you're planning your business strategy and investment path or reviewing your personal finances, here are the items you need to understand and in some cases consider carefully for tax planning purposes.
1. The economy
The Office for Budget Responsibility reduced this year's GDP projected growth by 0.4% to 2% while forecasts of 2.2% in 2017 and 2.1% in 2018 also represented modest downgrades. The new figures illustrate the fears over the global economic situation and a slowdown in China. The Chancellor announced £3.5bn would be cut from departmental spending.
The projections are significant because weaker economic growth than originally predicted could hurt future tax revenues. That in turn causes the debt to GDP ratio to rise which means the government's share of national debt to GDP ratio target could be missed. The government is banking on interest rates remaining low for longer than anticipated to bring down interest payments on the nation's debt. This means Osborne still anticipates a budget surplus of £10.4bn by the 2019/20 tax year.
2. Personal taxation
From 2016/17 there will be a reduction in the main rates of capital gains tax from 28% to 20% for higher and additional rate tax payers and from 18% to 10% for basic rate tax payers. The existing rates will continue to apply for gains on residential property other than the main residence.
The 10% entrepreneurs' relief tax rate on capital gains made by investors in unlisted companies has been extended.
Micro entrepreneurs and individuals who sell services and rent their properties won't have to pay taxes or fill out forms on the first £1,000 of income.This is being described as the sharing economy allowance.
The annual ISA limit will rise to £20,000 from April 2017 and a new Lifetime ISA for adults under the age of 40 will be launched. This will have a maximum contribution of £4,000 per year and a 25% bonus on savings.
The personal allowance will rise from £11,000 in 2016/17 to £11,500 in 2017/18. The higher rate threshold will also improve from £43,000 in 2016/17 to £45,000 in 2017/18. The aim is that by 2020/21 the personal allowance will be £12,500 with a higher rate threshold of £50,000.
Class 2 National Insurance Contributions (NICs) are to be abolished from 6 April 2018.
Termination payments over £30,000, which are subject to income tax, will become subject to employer NICs.
The aim is to cut corporation tax from the current level of 20% to 17% by 2020. The previous target was 18%.
The programme of business rate relief for smaller businesses will be extended for another year. This is said will benefit 600,000 small companies. A more comprehensive form of the tax on commercial property will be introduced in the next budget.
Stamp Duty Land Tax is being restructured on commercial properties to bring in banded charges. A new 2% rate will be applied to high value leases with a net present value above £5m.
£730m is being committed to backing renewables.
There will be new policies to tackle overseas retailers that store goods in the UK but sell them online without paying VAT.
The content of this post is up to date and relevant as at 17/03/2016.
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