The recent budget announcement has and will introduce significant changes that will impact almost everyone. A summary of the key changes are listed below:
Personal Tax
• Personal Allowance is being increased to £11,000 from 2016-17, with it increasing to £12,500 by 2020-21
• Basic rate band will be extended by £615 in 2016-17
• From April 2016, interest income to be tax free, first £1,000 for basic rate and first £500 for higher rate
• Amounts removed and added back into cash ISA will not be counted towards yearly allowance from April 2016
• Looking to remove annual tax returns and replace with digital accounts
• Looking to simplify tax/NIC treatment of termination payments
• Reviewing the abolishment of Class 2 NIC and reform of Class 4 NIC
Business Tax
• Corporation tax rate to be reduced to 19% by April 2017 and 18% by April 2020
• Major changes to dividends from April 2016 with the removal of the tax credit. First £5k of dividends tax free, thereafter charged at rates of 7.5% (Basic), 32.5% (Higher) and 38.1% (Additional)
• NIC employment allowance to be increased from £2k to £3k from April 2016, however the allowance is to be removed for one director limited companies
• HMRC have been instructed to review IR35
• Limited companies with profits exceeding £20 million to pay tax earlier
• Introduction of exemption for trivial benefit-in-kinds less than £50 from April 2016
• Restriction of goodwill amortisation corporation tax relief for all acquisitions and disposals from 8 July 2015
• A review to be carried out on the tax treatment of travel and subsistence costs
Rental Business
• Mortgage interest relief only available for basic rate tax payers
• This will be phased over 4 years starting from April 2017
• “Rent a Room” relief to be increased from £4,250 to £7,500 from April 2016
• Changes scheduled for the “wear and tear” allowance, but not yet confirmed
Benefits
• Tax credits and universal credits restricted to 2 children from April 2017
• Income threshold for tax credits reduced from £6,420 to £3,850
• Free 30 hours childcare for parents of 3 and 4 year olds from September 2017
• Other benefits to be reviewed
Inheritance Tax
• Nil rate band of £325,000 to remain
• Additional allowance introduced for main residence, starting in 2017-18 at £100,000 increasing to £175,000 by 2020-21
• Therefore, combined inheritance tax threshold of £425,000 in 2017-18 increasing to £500,000 by 2020-21.
• Inheritance tax thresholds are transferable to the surviving spouse, therefore by 2020-21 the threshold for both parents will be £1 million.
• Tapered withdrawal of main residence threshold for those estates valued > £2 million.
Vehicle Tax
• Major changes to Vehicle Excise Duties (road tax)
• New cars registered from April 2017, will pay a first year tax ranging from £0 – £2,000, and then annual flat fee of £140
• Considering increase of MOT exemption from 3 years to 4 years
Pension
• Reduction in tax free contributions for those earning in excess of £150k
• Pension lifetime allowance reduced from £1.25 million to £1 million from April 2016
Other
• Introduction of new “National Living Wage” set at £7.20 from April 2016. By April 2020 will increase to £9.
• Insurance Premium Tax increased from 6% to 9.5% from November 2015
Please contact us to discuss the budget changes in detail.