1. PENSIONS
Annual Allowance
§
The
standard annual allowance in 2016/2017 will be £40,000.
§
The
money purchase annual allowance in 2016/2017 will be £10,000.
§
The
annual allowance for high earners will be reduced to between £10,000 and
£40,000 (see below).
Higher Earners Tapered Annual Allowance
§
As
previously announced, a reduced annual allowance will apply to those with both
'adjusted income' of more than £150,000 and 'threshold income' of more than
£110,000.
§
‘Adjusted
income’ includes taxable income plus employer pension contributions and
employee contributions made by net pay arrangements. ‘Threshold income’
excludes pension contributions, unless paid under a salary sacrifice agreement,
set up on or after 9 July 2015. Where adjusted income and net income exceed the
respective thresholds, the taxpayer's annual allowance will be reduced by £1
for every £2 of adjusted income in excess of £150,000. The maximum reduction is
£30,000, which would result in an annual allowance of £10,000. The level of
adjusted income at which the maximum reduction in the annual allowance is
reached, is £210,000.
Pension Input Period
§
All
pension input periods will be aligned with the tax year from 2016/2017, with no
option to vary the period.
§
Carry
forward from the 3 previous tax years will be available as normal. However,
when using carry forward from 2016/2017 onward, it will be based on the tapered
annual allowance rather than the standard annual allowance.
Lifetime Allowance (LTA)
§
As
previously announced the LTA will reduce to £1 million for 2016/2017 and
2017/2018. Fixed Protection 2016 and Individual Protection 2016 are available.
There will be an online application process from July 2016. There is an interim
process from 6 April for those wishing to benefit from either form of
protection and take benefits before July. Those applying for Fixed Protection
2016 need to cease contributions/benefit accrual by 5 April 2016. Those
applying for Individual Protection 2016 will need a fund value of more than £1
million as at 5 April 2016.
§
The
LTA will then be index-linked in line with the consumer prices index (CPI) from
2018/2019.
§
Those
who want to apply for Individual Protection 2014 must do so online by 5 April
2017.
Tax Relief
§
The
Government concluded that no changes would be made to pension tax relief. The Chancellor
stated that after consulting widely there was no consensus on how the tax
regime should be reformed. This means all the current tax advantages and
allowances for pensions remain in place.
2. TAX EFFICIENT INVESTMENTS
Lifetime ISA
§
One
small Budget ‘rabbit’ was the announcement of the Lifetime ISA, which aims to
address the dilemma for younger savers in deciding whether to save to get onto
the property ladder or into a pension. Like an ISA, it takes a tax exempt
approach but offers a 25% Government bonus to top up savings (equating to 20%
basic rate tax relief). Like an ISA, only member contributions are permitted.
§
Full
details will be developed in consultation with the financial services sector
but the Government has set out detailed proposals. Adults aged under 40 will be
able to open a Lifetime ISA from April 2017. They'll be able to save up to
£4,000 a year from age 18 to 50, and receive a 25% Government bonus added at
the end of the tax year. So over a lifetime it will be possible to contribute a
maximum of £128,000 and benefit from a maximum bonus of £32,000. Contributions
to a Lifetime ISA will count towards the increased £20,000 ISA limit for
2017/2018.
§
Savers
will be able to withdraw funds including a Government bonus after 12 months to
use towards the purchase of a first home valued at up to £450,000. They'll also
be able to withdraw funds including the bonus for any reason from age 60.
§
Savers
will also be able to access their funds at any time for other purposes, but
will have to return the bonus with any interest or growth on the bonus to the
Government and pay a 5% charge. The Government will consult on whether to allow
penalty free loans, using an approach drawn from the US 401K system.
§
It
will be possible to access the funds penalty free in the event of terminal ill
health.
§
The
inheritance tax treatment will be the same as for ISAs.
Help To Buy ISA
§
Help
to Buy ISAs (available since December 2015) will remain open to new savers up
to 30 November 2019 and for new contributions until 2029. This product enables
first time buyers to save up to £200 per month towards a first home, with an
initial one-off deposit of £1,000. The Government boosts savings by 25% up to a
maximum of £3,000, which will be paid when a property is purchased.
§
While
it will be possible to open both types of ISA, it will only be possible to use
the Government bonus from one account towards buying a first home.
§
It
will be possible to transfer Help to Buy ISA funds into a Lifetime ISA during
the 2017/2018 tax year only.
ISA
§
The
main ISA limit will remain at £15,240 for 2016/2017, but will now increase to
£20,000 for 2017/2018. The limit for Junior ISAs and Child Trust Funds will
remain at £4,080 for 2016/2017.
§
New
flexible ISA rules come into effect from 6 April 2016. The rules allow
investors to pay withdrawals from a Cash ISA back into the account before the
end of the tax year, without reducing their subscription limit further.
Offering this flexibility is optional for ISA providers. This also covers:
-
Cash held in stocks and shares ISAs
-
Innovative finance ISAs
-
Withdrawals from Help to Buy ISAs if an
intended house purchase didn't proceed
Personal Savings Allowance
§
As
previously announced, a tax-free savings allowance of £1,000 is available from
6 April 2016 to those with taxable income of less than £43,000 i.e. basic-rate
payers and below. Higher rate taxpayers benefit from a £500 tax-free allowance.
Those earning over £150,000 are not entitled to an allowance.
3. DIVIDENDS
§
As
announced in the Summer Budget 2015, the current 10% dividend tax credit will
be abolished from April 2016. It will be replaced with a new £5,000 a year
dividend allowance.
§
The
new rates of tax on dividend income above the allowance will be:
7.5%
for basic rate taxpayers
32.5% for higher rate
taxpayers
38.1%
for additional rate taxpayers.
4. TAX
INCOME TAX
§ In 2016/2017 the income tax personal allowance will
increase by £400 to £11,000.
§ A further £500 increase in the income tax personal
allowance to £11,500 was announced from 2017/2018.
§ The basic rate income tax band increases to £32,000
from 2016/2017. Those entitled to the full standard personal allowance will,
therefore, pay 40% tax on income above £43,000. This amounts to a £615 increase
in the higher rate income tax threshold.
§
The
basic rate band will increase to £33,500 from 2017/2018.
§
Together
with the planned increases in the personal allowance, this means the higher
rate income tax threshold will be £45,000 from 2017/2018. These are the next
steps in the Chancellor's stated aim of increasing the personal allowance to
£12,500 and the higher rate income tax threshold to £50,000.
CAPITAL GAINS TAX (CGT)
§
The
capital gains tax annual exempt amount will remain at £11,100 in 2016/2017.
§
The
capital gains tax rates will decrease to 10% and 20% for basic and higher rate
taxpayers, respectively, from 6 April 2016.
§
These
rates will not apply to disposals of residential properties that do not qualify
for private residence relief, which will continue to be taxed at 18% and/or
28%.
INHERITANCE TAX (IHT) & TRUSTS
§
As
previously announced, the Government aims to reduce the number of estates
paying IHT by introducing a residence nil-rate band from April 2017. This will
apply where the main residence passes on death to direct descendants such as
children and grandchildren. This will be worth up to £100,000 in 2017/2018,
£125,000 in 2018/2019, £150,000 in 2019/2020 and £175,000 in 2020/2021 and will
then increase in line with CPI indexation. As with the existing nil-rate band,
executors will be able to claim any unused residence nil-rate band on the death
of a surviving spouse or civil partner, provided the second spouse dies on or
after 6 April 2017. Those with net estates worth more than £2 million will see
the additional nil-rate band scaled back by £1 for every £2 over this
threshold. Draft legislation was published in December 2015 for inclusion in
Finance Bill 2016, covering additional provisions applying where someone
downsizes or ceases to own a home on or after 8 July 2015.
§
The
IHT nil-rate band is currently frozen at £325,000 until 5 April 2021.
CORPORATION TAX
§
A
further reduction to the corporation tax rate to 17% rather than the previously
announced rate of 18% will apply from 2020. The current rate of 20% is due to
reduce to 19% in 2017.
NATIONAL INSURANCE
§
From
April 2018, Class 2 NICs will be abolished.
§
The
Government will reform Class 4 NICs so that the self-employed can continue to
build entitlement to the state pension and other contributory benefits.
§
From
April 2018, termination payments above £30,000 will become subject to employer NICs
but will remain exempt from employee NICs.
§
The
national insurance employment allowance, which reduces the overall cost of
employer national insurance contributions (NICs) increases from £2,000 to
£3,000 from April 2016.
§
While
the Government is known to be monitoring the use of salary exchange (also known
as salary sacrifice) to gain NICs and income tax advantages, the Budget
specifically mentioned that arrangements providing pension saving should
continue to benefit from relief.
5. OTHER
National Living Wage & National Minimum Wage
§
The
new National Living Wage (NLW) comes into effect from 1 April 2016 for workers
aged 25 and above at a rate of £7.20 per hour.
§
The
Government will increase the National Minimum Wage (NMW) rates from October
2016 as follows. The previous rate is displayed in brackets.
§
£6.95
(£6.70) per hour - main rate for workers aged 21 to 24.
§
£5.55
(£5.30) per hour – for workers aged 18 to 20.
§
£4.00
(£3.87) per hour - workers aged 16-17.
§
£3.40
(£3.30) per hour – apprentices aged under 19 or first year apprentices aged
19+.
§
The
Government will align the dates the NLW and NMW are reviewed so that both are
amended in April each year, commencing April 2017.
Property Letting
§
From
1 April 2016, higher rates of stamp duty will be charged on further purchases
of residential property i.e. second homes or buy to let properties. The
additional rate will be 3% above the standard rate and will apply to properties
worth £40,000 or more. The higher rates will apply to corporate investors as
well as individuals
§
The
tax relief on mortgage interest for landlords will be restricted to basic rate
for mortgages on 'buy to let' residential properties. The restriction will be
phased in over 4 years from April 2017.
§
‘Rent
a room’ relief will be increased from £4,250 to £7,500 from 2016/2017. The
relief had been frozen since 1997
Disclaimer
Every care has been taken to ensure that this
information is correct and in accordance with law and HM Revenue & Customs
practice, which may change. However, independent confirmation should be
obtained before acting or refraining from acting in reliance upon the
information given. This information is based on announcements made in the March
2016 Budget which may change before becoming law.
