A few surprises in the latest budget announcements that include: tax allowances for micro-business owners, a levy on soft drinks manufacturers, a reduction in the rates of Capital Gains Tax and a doubling of business rates relief for smaller concerns.
Our summary of these and other tax changes for 2016-17 and future years follows.
Personal Tax and miscellaneous matters
Personal Tax allowance
From 2016-17, there will be one Income Tax personal allowance regardless of an individual’s date of birth.
- For 2016-17 the allowance is set at £11,000, and
- For 2017-18 at £11,500
Income Tax rate bands
The Chancellor confirmed his intention to remove taxpayers from the higher rate of Income Tax by increasing the levels at which taxpayers start to pay higher or additional rate taxes. The levels for the next two years are:
- For 2016-17 – £43,000
- For 2017-18 – £45,000
If your income before allowances exceeds these amounts you will be paying 40% Income Tax on the excess (this assumes that you are only entitled to the basic personal allowance).
The threshold at which the 45% rate starts is unchanged at £150,000.
For yet another year there were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).
Capital Gains Tax (CGT) reduction
From April 2016, CGT on the disposal of chargeable assets, apart from residential property, is reduced to:
- 10% from 18% on disposals that form part of the basic rate band.
- 20% from 28% on disposals that form part of the higher rate band.
The existing rates (18% and 28%) will continue to apply to disposals of residential property subject to this tax and carried interest. Gains on a disposal of your home will continue to be exempt.
Entrepreneurs’ relief extended to include investors
Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies. This new investors’ relief will apply a 10% rate of CGT to gains accruing on the disposal of ordinary shares in an unlisted trading company held by individuals, that were newly issued to the claimant and acquired for new consideration on or after 17 March 2016, and have been held for a period of at least three years starting from 6 April 2016. A person’s qualifying gains for this investors’ relief will be subject to a lifetime cap of £10 million.
Entrepreneurs’ relief on disposal of goodwill relaxed
Legislation will be introduced in Finance Bill 2016 to allow ER to be claimed in respect of gains on goodwill where the claimant holds less than 5% of the shares, and less than 5% of the voting power, in the acquiring company. This ‘holding condition’ will replace a previous requirement that the claimant must not be a ‘related party’ in relation to the company.
Relief will also be due where the claimant holds 5% or more of the shares or voting power if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner.
Miscellaneous pension changes
A number of minor changes are being included to the pension’s tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015. The changes will:
- remove the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed
- replace the 45% tax charge on serious ill-health lump sums paid to individuals who have reached age 75 with tax at the individual’s marginal rate
- enable dependents with drawdown or flexi-access drawdown pension who would currently have to use all of this fund before age 23 or pay tax charges of up to 70% on any lump sum payment, to continue to access their funds as they wish after their 23rd birthday
- remove the rule on paying a charity lump sum death benefit out of drawdown pension funds and flexi-access drawdown funds where the member dies under the age of 75 because the equivalent tax-free payment may be made as another type of lump sum death benefit
- enable money purchase pensions in payment to be paid as a trivial commutation lump sum
- enable the full amount of dependent’s benefits to be paid as authorised payments where there are insufficient funds in a cash balance arrangement when the member dies
These changes will apply from the day after the Finance Bill 2016 receives Royal Assent later this year.
The duty on beers, spirits and most ciders will be frozen this year. The duty rates on wine will increase by RPI inflation from 21 March 2016.
Tobacco duty rates
Duty rates on all tobacco products will increase by 2% above the retail price index with a further 3% increase on hand-rolling tobacco, which will rise by 5% above RPI.
The changes to tobacco duty took effect from 6pm, 16 March 2016.
There will be no increase in fuel duties. At the end of 2016-17 this will be the 6th year fuel duty has been frozen.
The maximum amount of free personal allowance that can be transferred between spouses is increased to £1,100 in 2016-17 and £1,150 in 2017-18.
From April 2017, any person under 40 will be able to save into a new Lifetime ISA.
Up to £4,000 can be saved each year and savers will receive a government bonus of 25% – that is a bonus of up to £1,000 a year.
Some or all of the money can be used to buy a first home, or it can be kept until age 60.
Accounts will be limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together. If a saver has a Help to Buy ISA it can be transferred into the Lifetime ISA in 2017, or savers can continue saving into both, but it will only be possible to use the bonus from one to buy a house.
After your 60th birthday you can take out all the savings tax-free. You can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 5% charge.
ISA limit to rise April 2017
The present ISA savings limit of £15,240 will rise to £20,000 from April 2017.
Small business tax changes
Corporation Tax rate
The main rate of Corporation Tax from 1 April 2016 remains at 20%.
- From 1 April 2017 the rate is set to reduce to 19%
- From 1 April 2020 to 17%.
New stamp duty rates for commercial property acquisitions
From 17 March 2016, the way in which stamp duty is calculated on commercial property acquisitions will be changed. Instead of higher rates being applied to the total cost on a slab basis, the following rates will apply on a graduated basis.
The rates are:
- Up to £150,000 no stamp duty is due
- From £150,001 to £250,000 the rate is 2%
- Above £250,000 the rate is 5%
Buyers of commercial property worth up to £1.05m will pay less stamp duty as a result of this change.
Business rates reductions
A 100% relief is currently available if a business occupies a property with a rateable value of £6,000 or less.
From April 2017, small businesses will be able to claim a similar 100% relief if they occupy property with a rateable value up to £12,000. Taper relief will apply for properties valued between £12,000 and £15,000.
It is estimated that this will mean 600,000 small businesses will no longer pay business rates.
Non-monetary transactions are taxable
From budget day, 16 March 2016, any trading or property income received in non-monetary form have to be included as income for tax purposes. This confirms previous tax cases on this issue.
Insurance premiums to rise?
The standard rate of Insurance Premium Tax is being increased from 9.5% to 10% from 1 October 2016. This will likely result in increased premiums.
The increase in the tax will be used to fund new flood defences.
Employer’s NIC on termination payments
From April 2018, certain employee payoffs, for example termination payments in excess of the tax free £30,000 where Income Tax is also due, will be subject to an employers’ National Insurance charge.
For employees, payments up to £30,000 will remain tax free and they will not suffer an additional National Insurance charge.
Class 2 NIC to be abolished
The Class 2 NIC charge is to be abolished from April 2018. The self-employed will continue to pay the existing Class 4 contributions from this date. Class 4 contributions will be reformed such that the self-employed can continue to build entitlement to the State pension and other contributory benefits.
Two new tax allowances
The Chancellor has introduced two new tax allowances for micro-business owners. The £1,000 exemption from tax will apply to:
- People who make up to £1,000 from occasional jobs such as selling goods they have made, and
- The first £1,000 of miscellaneous income from property, for example renting a driveway.
Incorporated property businesses to pay increased stamp duty
In an attempt to create a level playing field, the Chancellor has clarified, by amending legislation, that individuals are subject to the 3% SDLT supplement if they purchase more than one property, and companies on all residential property purchases even the first such purchase. Here’s what the Budget notes say on this issue:
“If, at the end of the day of the transaction, an individual owns 2 or more properties and has not replaced their main residence, the higher rates will apply. Purchasers will have 36 months to either claim a refund from the higher rates, or before the higher rates will apply, in the event that there is a period of overlap or a gap in ownership of a main residence. Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property. Properties purchased for under £40,000, caravans, mobile homes and houseboats will be excluded from the higher rates. Furthermore, small shares in recently inherited properties will not be considered when determining if the higher rates apply.”
Zero-emission van’s benefit change deferred
Existing legislation, that applies the level of the van benefit charge for zero-emissions vans at 20% of the charge for conventionally fueled vans has been extended to the tax years 2016-17 and 2017-18.
This defers the planned increase to 40% of the van benefit charge for conventionally-fueled vans to 2018-19.
The van benefit charge for zero emission vans will be 60% of the van benefit charge for conventionally fueled vans in 2019-20, 80% in 2020-21 and 90% in 2021-22.
From 2022-23, the van benefit charge for zero emission vans is 100% of the van benefit charge for conventionally-fueled vans.
Diesel fuelled company cars’ 3% supplement retained
The 3% supplement that is added to the benefit in kind calculation for drivers of diesel fuelled company cars was due to expire 5 April 2016. The Finance Bill 2016 will now include a provision that retains this supplement indefinitely.
Trivial benefits in kind
Where the cost of providing a qualifying, “trivial benefit” for an employee is less than £50, it will no longer be required to disclose this as a benefit in kind from 6 April 2016.
There is an annual cap of £300 if the payments are made to directors or other office holders of a small company, or their employees who are relatives or members of their household.
Travel expense claims
From 6 April 2016, it will no longer be possible for workers engaged through an employment intermediary to claim for home to work travel expenses.
This regularises the established principal in the UK tax system that such regular commute costs between home and work cannot be claimed for tax purposes.
EIS, SEIS and VCTs: exclusion of energy generation
Investments in companies that engage in energy generation activities will be excluded from the tax advantaged Enterprise Investment Schemes, Seed Enterprise Scheme and Venture Capital Trusts. This will affect shares or holdings issued on or after 6 April 2016.
Use of home for business purposes by partners
The simplified expenses regime has been fully extended to include partnerships from April 2016. Where more than one property is used by partnerships for business and as a home then any claim for the simplified expense deduction for all such properties will be allowed.
VAT registration and deregistration limits
From 1 April 2016:
- Registration threshold increased to £83,000
- Deregistration threshold increased to £81,000
Larger company measures
Closing tax avoidance loopholes
In response to increasing demands from a number of directions the Chancellor has endeavoured to close a number of loopholes used by multinationals to avoid paying tax in the UK, on profits earned in the UK. They include:
- Rules to prevent multinationals avoid paying tax in any of the countries they do business, an avoidance technique called hybrid mismatches.
- Introducing rules to increase the tax take when companies make outbound royalty payments. Generally, these are fees paid for using intellectual property such as patents and copyrights.
- Ensuring that offshore property developers are taxed on their UK profits.
The oil and gas industry
A £1bn tax support package has been announced that will effectively abolish Petroleum Revenue Tax – a tax on profits from oil fields approved before 1993 – and by dramatically reducing the supplementary charge on oil and gas extraction.
Soft drinks levy
From April 2018, manufacturers of soft drinks will be subject to a levy based on the sugar content of their products.
The basic rate will apply to drink with a sugar content in excess of 5 grams per 100 millilitres, with a higher rate for drinks on more than 8 grams per millilitre.
The levy will not apply to milk-based drinks or fruit juices.
The Treasury will use the proceeds of the levy to double the primary PE and sport premium. They will increase money provided to schools for this purpose to £320m per annum.