Springfield Financial Services were paying close attention to the announcements of George Osborne’s 8th budget, delivered on Wednesday 16th March 2016. Some of the changes will have immediate impact on the advice that we provide to our clients, a summary of the main changes are detailed below;
- The personal allowance will increase from £10,600 to £11,000 from 6th April 2016 and £11,500 from 6th April 2017.
- The point at which the higher rate of income tax will apply will increase from £42,385 to £43,000 from 6th April 2016 and £45,000 from 6th April 2017.
Capital Gains Tax
There is to be a reduction in CGT for chargeable gains, except in relation to chargeable gains accruing on the disposal of residential property (that do not qualify for private residence relief), and carried interest. These changes will affect individuals, trusts and personal representatives who pay CGT.
- The 18% rate of CGT for basic rate taxpayers is reduced to 10% and the 28% rate of CGT for higher/additional rate taxpayers and trusts is reduced to 20%.
- This measure will have effect for relevant gains accruing on or after 6 April 2016.
- The annual exemption for 2016/17 is £11,100. The annual exemption for Trustees is therefore £5,550.
The nil rate band remains at £325,000 as does the rate of 40%. An additional nil rate band of £100,000 for main residence will apply from 6th April 2017.
Stamp Duty Taxes
A zero rate band for commercial property purchase up to £150,000, with a 2% duty on the next £100,000 and a further 5% duty over £250,000.
This will appeal to investors holding commercial property assets under their Self Invested Personal Pension (SIPP).
The Government had previously announced plans for cuts in the corporation tax rate to 19% in 2017 and 18% in 2020.
- It has been decided to reduce the rate to 17% in 2020 (rather than to 18%).
Annual threshold for 100% relief on business rates for small firms to rise from £6,000 to £12,000 and the higher rate from £18,000 to £51,000, exempting 600,000 firms.
Class 2 National Insurance Contributions
From April 2018, Class 2 National Insurance contributions are to be abolished. This will allow millions of self-employed individuals to keep more of their money and invest it back into growing their business.
Increase to the annual ISA allowance:
- From 6th April 2016 the maximum that can be paid into an ISA is £15,240. From 6th April 2017 this will increase to £20,000.
New Lifetime ISA
From April 2017, those over 18 and under 40 will be able to open a new Lifetime ISA.
- The Lifetime ISA will sit alongside the Cash, Stocks and Shares and Innovative Finance ISAs. Qualifying investments in a Lifetime ISA will be the same as for a cash or stocks and shares ISA. The rules will in most ways be identical to opening a regular ISA and individuals will be able to open more than one Lifetime ISA during their lives but will only be able to pay into one Lifetime ISA in each tax year.
- Savers will be able to contribute up to £4,000 each year to which the Government will add a 25% bonus at the end of the tax year. Contributions will be made with the individual’s own cash. This additional bonus will be payable up to a maximum of £1,000 for each year between the ages of 18 and 50.
- The money in a Lifetime ISA can be used to supplement retirement income from age 60, unlike a pension where it is age 55, or accessed before then to help first time buyers buy a home worth up to £450,000 at any time from 12 months after opening the account.
- The Lifetime ISA will interact with the Help to Buy ISA and during 2017/18 only, additional transfers may be made and matched from the Help to Buy ISA. Going forward if you have both types of ISA you cannot use the Government bonus from both accounts to put towards your first house purchase.
- Individuals will be able to withdraw money before age 60 for other purposes however the Government’s element of the fund, including any interest or growth on the bonus will be returned to the Government. In addition there will be a 5% charge.
- The maximum that can be paid into a Lifetime ISA will therefore be £128,000 with a maximum bonus of £32,000.
- Any contributions to a Lifetime ISA will form part of the overall £20,000 limit from 6th April 2017.
Help to Save
The Government is to introduce a new Help to Save scheme for individuals on low incomes.
- The scheme will be open to individuals in receipt of Universal Credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or those in receipt of Working Tax Credit.
- It will work by providing a 50% government bonus on up to £50 of monthly savings. The bonus will be paid after two years with an option to save for a further two years, meaning individuals can save up to £2,400 and benefit from government bonuses worth up to £1,200. Individuals will be able to use the funds in any way they wish.
The annual allowance remains at £40,000 for tax year 2016/17 with the introduction of the tapered annual allowance from 6th April 2016 for higher earners. The Money Purchase Annual Allowance also remains at £10,000.
As expected, the lifetime allowance will reduce from £1.25 million to £1 million from 6th April 2016. The Lifetime Allowance is currently scheduled to begin to rise in line with the consumers prices index (CPI) from 6th April 2018.
Although the changes affecting private pension scheme provision were not nearly as radical as they could have been, there are still a number a number of important announcements made to support the April 2015 pension changes.
- If a member of a registered pension scheme dies on or after their 75th birthday, any payment to a ‘qualifying person’ will be taxed at the recipient’s marginal income tax rate via PAYE.
- Bringing the tax treatment of serious ill-health lump sums in to line with lump sum death benefits, so they can be paid tax free when someone aged under 75 has less than a year to live but has already accessed their pension.
- Making serious ill health lump sums taxable at an individual’s marginal rate when paid in respect of individuals aged 75 and over.
- The Government will ensure the industry designs, funds and launches a pensions dashboard (a digital interface where an individual can view all their retirement savings in one place) by 2019.
- When a dependant reaches their 23rd birthday, their account will be switched into a nominee’s account to correct a previous omission in the legislation.
Pensions and Inheritance Tax (IHT)
As announced in the Autumn Statement 2015, the Government will legislate to ensure a charge to IHT does not arise when a pension scheme member designates funds for drawdown but does not draw all of their funds before death. This will be backdated to apply to deaths on or after 6 April 2011.
The Government is considering what range of benefits salary exchange can be used for. It is intended though that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and National Insurance relief when provided through salary exchange.
For further information, please consult HMRC website – https://www.gov.uk/browse/tax
To discuss how these announcements impact on your financial position, call us on 01772 729 742 to arrange a meeting with an adviser at Springfield Financial Services.
The information provided is based on our current understanding of the Budget 2016 and associated documents and may be subject to alteration as a result of changes in legislation or practice.