The Chancellor of the Exchequer, George Osborne, presented his 2016 Budget today. As widely predicted, he has announced his intention to boost spending on infrastructure while making savings through reductions in departmental spending.
Economic Growth and Debt
The Office of Budget Responsibility has forecast GDP growth of 2% for 2016, 2.2% for 2017 and 2.1% for 2018, 2019 and 2020. The Chancellor pointedly remarked that these predictions were dependent on the UK remaining in the EU.
The Chancellor will be looking at an overall reduction of 0.5% in government spending in real terms by 2019-20, with predicted budget surpluses of £10.4 billion for 2019-20 and £11 billion for 2020-21. This will result in a reduction of the national debt to 74.7% of GDP by 2020-21.
The personal tax allowance will rise to £11,500 in 2017-18. It is already scheduled to rise to £12,500 by 2020-21.
The threshold for higher rate income tax will rise to £43,000 in 2016-17 and to £45,000 in 2017-18. The target for 2020 remains at £50,000.
With effect from April 2017 certain income from “the sharing economy” will be tax-free. Up to £1,000 of income will be tax-free if derived from occasional jobs; a further £1,000 will be tax-free if derived from the use of property.
With effect from 6 April 2016 the rates of Capital Gains Tax will reduce from 28% to 20% in the case of higher rate taxpayers and trustees, and from 18% to 10% for basic rate taxpayers with gains within the higher-rate bracket. The rates of 28% and 18% will, however, remain for disposals of land and buildings (other than one’s main residence) and to carried interest (the share of profits or gains paid to asset managers).
Entrepreneurs Relief from Capital Gains Tax will be extended to certain disposals to family members, to long-term investors and to joint ventures.
To maintain the UK’s momentum in reducing business taxes, the main rate of corporation tax will be cut to 17% in 2020.
With effect from April 2017 small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates, with a tapered relief for properties with a rateable value of £12,000 to £15,000.
Stamp Duty Land Tax on purchases of non-residential property will be charged on a slice basis with effect from 17 March 2016. The first £150,000 will be zero-rated; £150,001 to £250,000 charged at 2% and the transaction value over £250,000 charged at 5%. For leases, the first £150,000 of rent will be zero-rated; £150,001 to £5 million charged at 1% and the excess over £5 million charged at 2%.
With effect from April 2018 employers will be liable to pay Class 1 National Insurance contributions on pay-offs to employees of over £30,000, in addition to income tax. Payments under £30,000 will remain tax-free.
Class 2 National Insurance contributions (for self-employed persons) will be abolished with effect from April 2018. Class 4 contributions will remain payable.
Pensions and Savings
Minor changes have been made to the rules regarding pension flexibility introduced in April 2015 to benefit members of pension schemes with a life expectancy of under 12 months, dependants under the age of 23 and holders of pension funds totalling less than £30,000.
The total annual amount that an individual may put into an ISA will increase from £15,240 to £20,000 with effect from 6 April 2017.
A “Lifetime ISA” will be introduced in April 2017. This may be opened by anyone between the ages of 18 and 40, and up to £4,000 per year may be put into it until the holder’s 50th birthday. The Government will contribute an additional sum of 25% of the value put in. After the age of 60 the savings can be withdrawn tax-free. Withdrawal before the age of 60 will result in loss of the bonus and an additional charge of 5%.
A Lifetime ISA (including the bonus) may be used towards a deposit on a first home of up to £450,000 in value, with two first-time buyers each able to use their ISA and bonus.
With effect from April 2017 armed forces veterans will be able to keep payments from their war pensions if going into social care.
Education and Health
Every school in England will become an academy or free school, or be in the process of becoming one, by the end of 2020.
Up to £285 million per year will be made available to enable 25% of secondary schools to opt into a longer school day from September 2017 in order to offer a wider range of activities for pupils.
Soft drinks companies will pay a levy on drinks with added sugar with effect from April 2018. This will not apply to natural fruit juices or milk-based drinks. The levy will be used to fund school PE and sports activities.
The Government will introduce rules as recommended by the OECD to require multinational companies to pay tax on business carried on in the UK and on copyright and patent royalties derived from business in the UK.
Offshore property developers will be taxed on their UK profits as if they had been based in the UK.
Transport and Infrastructure
£60 million will be made available to develop plans to upgrade rail travel between Leeds and Manchester, as well as improving connections between other cities in the North of England.
£80 million will be made available to continue plans for the construction of London Crossrail 2.
Funding for new flood defences in Leeds, York, the Calder Valley and Cumbria, and for maintenance of existing defences, will be funded from an increase of 0.5% in Insurance Premium Tax.
Duty rates on beer, spirits, still cider and lower-strength sparkling ciders will be frozen for the current year.
Fuel duty rates will again be unchanged for the current year.
The above is for information only and should not be taken as constituting legal or financial advice in any way.
Chartered Tax Adviser
Head of Private Client, Morrisons Solicitors LLP