The Chancellor has made his fourth major statement to Parliament in the past 12 months with his 2016 budget. Whilst there have been no fundamental changes, there has been a degree of tinkering with the existing tax rules which may not be entirely in line with the stated objective of tax simplification!
Below we have summarised the key announcements but, as ever, more detail will no doubt come to light over the coming days and we will keep you posted of any significant additions.
As far as Cornwall is concerned, Mr Osborne has announced £2 million of funding for the refurbishment of the Hall for Cornwall in Truro and £20 million of new funding for Community Housing Trusts based in the South West.
Should you have any further questions about the budget and how it might affect you, please do not hesitate to get in touch.
Personal Taxes in the 2016 Budget
Capital Gains Tax
One of the most significant measures announced in the 2016 budget was the reduction in the rates of Capital Gains Tax; now at 10% for gains falling within basic rate bands and 20% there after.
The Chancellor’s position on residential landlords remains clear as residential property is excluded from this tax cut and continues to be subject to the current 18% and 28%.
Along with the annual ISA contribution limit increasing from £15,240 to £20,000 in April 2017, a major announcement in the 2016 budget was that individuals under the age of 40 will be able to open a lifetime ISA. For each £1 saved the Government will contribute an additional 25p. This will be subject to an annual limit of £4,000 and a lifetime limit of £128,000. Investors will be able to invest from the age of 18 to 50. Generally investors will be able to withdraw money to buy their first home or when they are the age of 60. Individuals can withdraw their savings for other reasons, but the government contribution will be reclaimed and a 5% charge will be applied. They are consulting on plans to allow investors to borrow from the fund without incurring any penalties.
The taxation of residential landlords is becoming increasingly onerous with the following combining to increase the tax burden:
- Abolition of Wear and Tear Allowance
- Restrictions on the tax relief for interest payments and renewals
- Transactions involving the purchase of additional property will be subject to an additional 3% SDLT charge
- No reduction in the Capital Gains Tax
Relief for Entrepreneurs
Entrepreneurs’ Relief (ER) has been extended to shareholders of unlisted trading companies. To qualify, the shares must be newly issued and held for at least three years. Capital Gains Tax arising from the sale or gift of qualifying shares will be subject to the ER tax rate of 10%, subject to a cap of £10 million. The Government has also addressed an anomaly in the Finance Act 2015 which affected the availability of ER for associated disposals.
Stamp Duty Land Tax
In line with the changes to the Stamp Duty Land Tax (SDLT) on residential properties, the SDLT payable on transactions will now also be calculated with reference to the bands. Government statistics indicate that there are approximately 100,000 such transactions per year and the Exchequer anticipates that this measure will increase revenue by more than £500 million per annum.
Business Taxes in the 2016 Budget
Tax on Directors’ Loan Accounts
Loans from 6th April 2016 to shareholders will attract a withholding tax at 32.5% of the value of the loan, up from 25%.
Business Rate Relief
From April 2017 properties with a rateable value of less than £12,000 will pay no business rates. A tapered rate of relief will apply to properties with values between £12,00 and £15,000.
Corporation Tax will be levied at 17% from 2020, less than previously announced, but still in line with the reductions announced in last Summer’s Budget.
Employee Shareholder Exemption
Shares acquired under employee shareholder agreements were previously exempt from Capital Gains Tax. From 17th March there will be a lifetime limit of £100,000 on exempt gains.
Termination payments in excess of the £30,000 tax free amount will, from April 2018, be subject to Employers’ National Insurance contributions when previously the payments were only subject to Income Tax.
From April 2017, the brought forward loss relief rules will be relaxed to allow the losses to be offset against any type of profits. For example, brought forward trading losses could be offset against rental profits. Restrictions for losses in excess of £5 million.
This briefing aims to provide an awareness of the topic. It is not intended to constitute advice. No liability is accepted for any omission or inaccuracy. We strongly recommend you always seek our specific advice in relation to each scenario.