Pitched as a "Budget that puts the next generation first", George Osborne's speech contained a number of announcements aimed at helping people save for the future.
For businesses, measures included changes to business rates and the abolition of class 2 national insurance contributions for the self-employed.
And, as we've come to expect from such occasions, there were a few surprises too....
The following report summarises the announcements made by Chancellor George Osborne during the Budget 2016 on 16th March, 2016.
Important Information:
The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. The information in this report is based upon our understanding of Budget 2016, in respect of which specific implementation details may change when the final legislation and supporting documentation are published.
The report is solely for information purposes and nothing in this report is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content.
Whilst considerable care has been taken to ensure that the information contained within this report is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.
This report at a glance:
- Business Announcements - Personal Allowance - Lifetime ISA - ISAS - Fuel Duty - Alcohol Duties - Capital Gains Tax - Sugar Levy - Insurance Tax - Stamp Duty - Infrastructure
Please see our article entitled Budget Report 2016 - Business Announcements which summarises how Budget 2016 may affect you from a business perspective.
Personal Allowance And Higher Rate Threshold
The personal allowance will be increased from £11,000 in 2016/17 to £11,500 in 2017/18.
The higher rate threshold will increase from £32,000 iin 2016/17 to £33,500 in 2017/18. Individuals entitled to a full personal allowance will not be liable to higher rate tax until their total income exceeds £43,000 in 2016/17 and £45,000 in 2017/18.
The NICs upper earnings limit will also increase to remain in line with the higher rate threshold.
Property And Trading Income Allowances
The government will introduce a new £1,000 allowance for property income and a new £1,000 allowance for trading income from April 2017. Individuals with less than £1,000 of either source of income will no longer need to declare or pay tax on that income.
Those with income above £1,000 will be able to deduct their expenses in the usual manner or simply deduct the £1,000 allowance.
Finance Costs Restriction For Landlords
Legislation will be introduced relating to finance costs on residential properties incurred on or after 6th April 2017 in order to ensure that:
- individual beneficiaries of deceased persons' estates are entitled to the basic rate tax reduction.
- the total income restriction to the tax reduction applies where the relevant finance costs or property profits are higher than the total income.
- the total income is a measure of the net taxable income after other reliefs.
- any carried forward tax reduction is given in any subsequent year in which property income is received, even if there is no restriction on the deduction of finance costs in that year, as the loan may have been repaid.
Reform Of The Wear And Tear Allowance
As announced at Summer Budget 2015, the wear and tear allowance is being abolished from April 2016. Landlords will be able to deduct the actual costs of replacing furnishings.
Profits From Trading In And Developing UK Land
The government is acting to ensure that there is a level playing field between non-UK resident developers of UK property and UK developers.
The legislation will introduce a standard set of rules for taxing trading profits derived from trading in and developing land in the UK.
It will be introduced from report stage and will take effect from the date of introduction. Anti-avoidance rules will take effect from budget day to counteract any arrangements put in place.
The new rules will apply even if the overseas developer has no permanent establishment in the UK. The profits will be subject to either income tax or corporation tax depending upon the business structure used by the developer.
Bad Debt Relief For Peer-To-Peer Lending
Tax relief will be allowable on bad debts incurred on peer-to-peer loans against other peer-to-peer income.
Extending Farmers Averaging Period
Farmers will have the choice of averaging their profits for income tax purposes over 2 years or 5 years. This was announced earlier in Autumn Statement 2015 and will apply from April 2016.
Non-Domicile Taxation
From April 2017 non-UK domiciled individuals will be deemed UK domiciled if they have been resident in the UK for 15 our of the past 20 tax years. This was announced in Summer Budget 2015.
In addition individuals who were born in the UK and who have a UK domicile or origin will revert to their UK domiciled status whilst they are resident in the UK.
The government will also legislate to charge inheritance tax (IHT) on all UK residential property indirectly held through an offshore structure from 6th April 2017.
Benefits In Kind
The law regarding the taxation of benefits in kind is being clarified with effect from 6th April 2016.
The concept of 'fair bargain' only applies to general taxable benefits where the taxable amount is based on the cost to the employers of providing the benefit.
If the employee receives good or services from their employer at the same cost as a member of the public there is no benefit in kind.
The concept of 'fair bargain' does not apply to the taxation of certain benefits in kind which have specific charging rules, such as beneficial loans, accommodation and company cars.
Income From Sporting Testimonials
All income received by an employee from a sporting testimonial or benefit march will be chargeable to income tax and NICs.
There will be a one-off exemption of £100,000 of the income received from events held during a single testimonial or testimonial year.
If the proceeds exceed £100,000 PAYE will need to be applied.
The exemption will not be available if the right to the testimonial is contractual or customary.
The new rules will apply for income received from testimonial events held on or after 6th April 2017 where the testimonial was awarded on or after 25th November 2015. If the testimonial was awarded before 25th November 2015 then existing arrangements will apply.
Capital Taxes
Capital Gains Tax Rates
The rates of Capital Gains Tax (CGT) are changing for disposals of relevant assets made on or after 6th April 2016:
- the 18% rate of CGT, which applies to individuals who are not higher rate taxpayers, will be reduced to 10%.
- the 28% rate of CGT will reduce to 20%.
- disposals of residential property that do not qualify for private residence relief and the receipt of carried interest will continue to be taxed at the 18% and 28% rates of CGT.
- provisions will be introduced to enable a taxpayers to use any unused income tax basic rate band in the most beneficial way.
Entrepreneurs' Relief: Extension To Long Terms Investors
Entrepreneurs' Relief will be extended to external investors in unlisted trading companies. This new relief will apply at 10% rate of CGT to gains accruing on 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 17th March 2016, and have been held for at least three years from 6th April 2016.
There will be a lifetime cap for investors of £10,000.000.
Entrepreneurs' Relief On Associated Disposals
Finance Act 2015 introduced new rules to combat abuse of entrepreneurs' relief but they had unintended consequences which prevented entrepreneurs' relief being available on associated disposals when a business was being sold to a member of the family as part of the succession planning for the business.
Legislation will be introduced in Finance Bill 2016 to amend the definitions of 'partnership purchase arrangements' and 'share purchase arrangements' for entrepreneurs' relief purposes by excluding the material disposal itself and arrangements which predated both the material disposal and an associated disposal and are independent of the material disposal.
The legislation will be backdated and will apply to associated disposals made on or after 18th March 2015.
The requirement that the material disposal of business assets is 5% or more of the claimant's share in the company or partnership does not apply where the claimant disposes of the whole of the interest and has previously held a larger stake.
Employee Shareholder Status Exemption
Employee shareholder shares issued as consideration for entering into employee shareholder agreements after midnight on 16th March 2016 will be subject to a lifetime limit of £100,00 exempt gains for the purposes of CGT.
Gains in excess of the limit will be subject to CGT at the prevailing rate. Any employee shareholder shares that were issued before midnight on 16th March 2016 will not be subject to any lifetime limit when sold.
If any employee shareholder shares are transferred to a civil partner or spouse, the transfer will be treated as being made for a consideration which gives rise to a gain equal to the transferor's unused lifetime limit, provided that the consideration does not exceed the market value of the shares transferred. This will fix the acquisition cost of the person acquiring the shares.
Inheritance Tax Measures
The government will legislate to ensure that the residence nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8th July 2015 where assets are passed on death to direct descendents.
Legislation will be introduced to ensure that a charge to IHT will not arise when a pension scheme member designates funds for drawdown but does not draw all the funds before death. This will be backdated to apply to deaths on or after 6th April 2011.
Savings And Pensions
Dividend Taxation
The existing dividend tax credit is being abolished from April 2016 and a new dividend allowance of £5,000 a year is being introduced.
Tax on dividend income above the allowance will be charged at:
- 7.5% for basic rate taxpayers
- 32.5% for higher rate taxpayers
- 38.1% for additional rate taxpayers
Savings And Interest
A personal savings allowance is being introduced from 6th April 2016 to remove tax from up to £1,000 of savings income from a basic rate taxpayers and up to £500 for higher rate taxpayers. Additional rate taxpayers will receive no allowance.
Interest from open-ended investment companies, authorised unit trusts, investment trust companies and peer-to-peer lenders may be paid without deduction of income tax from April 2017.
Lifetime ISA And ISA Limit
A new lifetime ISA will be available for adults under the age of 40 from April 2017. Individuals will be able to contribute up to £4,000 per annum and will receive a 25% state bonus.
Funds, including the bonus, can be used to purchase a first home at any time after the first annual anniversary of opening the account. Funds may be withdrawn from the age of 60.
The overall annual ISA subscription limit will increase from £15,240 to £20,000 from 6th April 2017.
Help To Save
Individual in low income working households will be able to save up to £50 per month into a Help To Save account and receive a 50% government bonus after two years.
Account holders can then choose to continue saving under the scheme for a further two years. The scheme will be introduced no later than April 2018 and will be open to all adults in receipt of universal credit with minimum weekly household earnings equivalent to 16 hours at the national living wage or those in receipt of working tax credits.
Pension Flexibility
A number of minor changes are being made to the pension tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015.
The changes will be effective from the day after the date of royal assent to Finance Bill 2016. They will:
- replace the 45% tax charge on serious ill-health lump sums paid to individuals who have reached the age of 75 with taxation paid at the individual's marginal rate.
- enable money purchase pensions in payment to be paid as a trivial commutation lump sum.
- remove the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed.
- enable dependants with drawdown or flexi-access drawdown pension who would currently have to use all of this fund before age 23 or pay 45% tax charges of up to 70% on any lump sum payment to continue to access their funds as they wish after their 23rd birthday.
Reduction Of Lifetime Allowance
As announced at Budget 2015, the pensions lifetime allowance is reducing from £1,250,000 to £1,000,000 with effect from 6th April 2016.
Enterprise Investment Scheme And Venture Capital Trusts
Changes are being made to ensure that the enterprise investment schemes (EIS) and venture capital trusts (VCT) legislation introduced in Finance (No 2) Act 2015 works as intended.
A new condition will be introduced from 6th April 2016 to clarify the non-qualifying investments a VCT may make for liquidity management purposes.
The methods of determining the five year period for the average turnover amount and the relevant three preceding years for the operating costs conditions will be clarified for both EIS and VCTs to ensure that the most recently filed accounts of a company are generally used to determine the end date of the relevant period.
The operative date will be 18th November 2015, although an investee company may elect to apply the existing legislation for investments received between 18th November 2015 and 5th April 2016 inclusive.
Duties
Stamp Duty Land Tax
Reforms were introduced to the changing provisions for non-residential property. The stamp duty land tax (SDLT) charged on purchases of non-residential properties and transactions involving a mixture of residential and non-residential properties is to change for transactions on or after 17th March 2016.
Thereafter SDLT will be charged at each rate on the portion of the purchase price which falls within each rate band. The new rates and thresholds are as follows:
| Transaction Value Band | Rate |
|---|---|
| £0 - £150,000 | 0% |
| £150,001 - £250,000 | 2% |
| £250,001 + | 5% |
For new leasehold transactions, SDLT is already charged at each rate on the portion of the net present value (NPV) of the rent which falls within each band.
On and after 17th March 2016 a new 2% rate for rent paid under a non-residential lease will be introduced where the NPV of the rent is above £5 Million.
The new rates bands and thresholds for rent paid under a lease are:
| Net Present Value Of Rent | Rate |
|---|---|
| £0 - £150,000 | 0% |
| £150,001 - £5,000,000 | 1% |
| £5,000,000 + | 2% |
Higher rate of SDLT will be charged on purchases of additional residential properties, such as second homes and buy-to-let properties. The higher rates will be 3 percentage points above the current SDLT rates:
| Thresholds | Existing SDLT Rates | New Additional Property SDLT Rates |
|---|---|---|
| £0 - £125,000 | 0% | 3% |
| £125,001 - £250,000 | 2% | 5% |
| £250,001 - £925,000 | 5% | 8% |
| £925,001 - £1,500,000 | 10% | 13% |
| Over £1,500,000 | 12% | 15% |
The announcement also provides arrangements where 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.
Climate Change Levy
Rates for the climate change levy (CCL) are to increase for 2017/18, 2018/19 and 2019/20. The CCL main rates will increase in line with RPI.
These increases are partly intended to replace tax revenues lost as a result of the abolition of carbon reduction commitment energy efficiency scheme. The reduced rates of CCL for qualifying businesses in the climate change agreement scheme will be amended so participants will not pay more CCL than they would under the currently expected RPI increase for that year.
Fuel Duty
The main rate of fuel duty for both petrol and diesel are to remain frozen at 57.95 pence per litre.
Vehicle Excise Duties
Vehicle excise duty rates are to be maintained in real terms by increasing the duty by the RPI. This is a consistently applied policy as rates have increased in line with inflation since 2010. The next increase in rates will apply on 1st April 2016.
Exemption For Classic Vehicles
A 40 year rolling exemption for classic vehicles was announced in Budget 2014. Budget 2016 now makes this a permanent exemption for classic vehicles so that on 1st April each year vehicles constructed more than 40 years before 1st January that year wll automatically be exempt from paying vehicle excise duty. It is reported that there are around 10,000 classic vehicle owners.
Landfill Tax
Rates are set to increase by inflation rounded to the nearest 5 pence:
| Waste Sent To Landfill | Rate From 1st April 2016 | Rate From 1st April 2017 | Rate From 1st April 2018 |
|---|---|---|---|
| Standard Rate | £84.40/tonne | £86.10/tonne | £88.95/tonne |
| Lower Rate | £2.65/tonne | £2.70/tonne | £2.80/tonne |
It is reported that since 2000, the amount of waste sent to landfill has reduced by 70% while the average household recycling rates have risen from 18% to 44%.
Hand-Rolling Tobacco
The duty rate on hand-rolling tobacco increases with effect from 6pm on 16th March 2016 by 5% above RPI. This represents an additional 3% rise above the tobacco duty escalator.
Air Passenger Duty
Duty rates are set to increase in line with RPI.
From 1st April 2016:
| Bands (Distance In Miles From London) | Reduced Rate (Lowest Class Of Travel) | Standard Rate (Other Than Lowest Class Of Travel) | Higher Rate |
|---|---|---|---|
| Band A (0-2000 miles) | £13 | £26 | £78 |
| Band B (over 2000 miles) | £73 | £146 | £438 |
From 1st April 2017:
| Bands (Distance In Miles From London) | Reduced Rate (Lowest Class Of Travel) | Standard Rate (Other Than Lowest Class Of Travel) | Higher Rate |
|---|---|---|---|
| Band A (0-2000 miles) | £13 | £26 | £78 |
| Band B (over 2000 miles) | £75 | £150 | £450 |
Gaming Duty
Duty is paid by casinos on their gross gaming yield. Rates range from 15% which applies to the first £2,370,500 of gross gaming yield (GGY) up to 50%.
The 50% rate applies to any GGY that exceeds the aggregate of the bandings to which to 15%, 20%, 30% or 40% apply.
If the bandings were not increased in line with inflation then more GGY would be subject to higher rates.
The increase in gaming duty bans will take effect for gaming duty accounting periods starting on or after 1st April 2016.
VAT
Rates
The positive rates of VAT are unchanged, so the standard rate remains at 20% and the reduced rate at 5%.
Changes To VAT Registration And De-Registration Thresholds
The taxable turnover threshold, which requires a person to register for VAT, will be increased from £82,000 to £83,000 per annum.
The threshold below which a VAT-registered person may apply to de-register will be increased from £80,000 to £81,000 per annum, and the relevant registration and de-registration threshold for intra-Community acquisitions will also be increased from £82,000 to £83,000 per annum.
All these changes will take effect from 1st April 2016 and will prevent around 2,000 businesses from having to register in the financial year 2017 to 2017.
The changes will also raise the turnover limit for income tax self-assessment '3 line accounts' and increase the entry and exit thresholds for the income tax cash basis accounting, so that they are aligned with the new VAT registration threshold.
Overseas Businesses And Online Marketplaces
Changes are to be introduced to give HMRC greater powers to tackle non-compliance on the part of overseas businesses that avoid paying VAT on sale made to UK consumers through online marketplaces.
There will be two aspects to the changes, which HMRC will no automatically apply, but use only to tacked the highest risk compliance cases.
The first change will strengthen HMRC's powers to direct overseas businesses to appoint a VAT representative, including the power to insist that the representative is in the UK. It will also provide greater flexibility as regards seeking security.
The second change will enable HMRC to make online marketplace jointly and severally liable for any VAT unpaid by the overseas business on goods sold in the UK through the online marketplace's website.
Both of these changes will be effective from royal assent to Finance Bill 2016.
Electronic Communications Services
This measure introduced a VAT reverse charge in the UK, designed to tackle missing trader intra community (MTIC) fraud. It was not a Budget measure as such, as it was announced on 11th January 2016 and introduced by Treasury Order on 1st February 2016.
Those perpetrating MTIC fraud charge and collect VAT on their supplies but then 'disappear' without paying over the VAT to the Exchequer. The introduction of a reverse charge means the business customer must now account for the VAT due, rather than the supplier.
VAT Fraud
The government will consult on a new penalty for participating in VAT fraud in Spring 2016. Subject to the consultation, the intention is to legislate in Finance Bill 2017.
The new measure only applies to wholesale services of routing telephone calls and associated data such as texts and images over landlines, mobile networks or the Internet. It does not affect consumption supplies.
Fulfilment House Due Diligence Scheme
The government has introduced a consultation on the 'fit and proper' standards that fulfilment houses will need to meet for them to be able to operate.
They will have to register and maintain accurate records once online registration begins in 2018. They will also have to provide evidence of the due diligence they have undertaken to ensure overseas clients are following VAT rules.
The purpose is ultimately to minimise any costs for legitimate businesses.
International Solutions To Vat Fraud
The government plans ongoing discussions with the EU and OECD with the objective of finding better solutions to international VAT fraud, including different mechanisms for collecting VAT.
Museums And Galleries
The Department for Culture, Media and Sport has published guidance on new criteria to broaden eligibility for VAT refunds and thus provide greater support for museums and galleries in the UK.
VAT Reliefs For Isle Of Man Charities
Legislation is to be introduced to enable charities subject to the jurisdiction of the High Court of the Isle Of Man to receive all the VAT benefits available under UK law.
Other Announcements
Insurance Premium Tax
The standard rate of insurance premium tax will increase from 9.5% to 10% with effect from 1st October 2016.
Claims Management Regulation
There is to be a tougher regulatory regime for claims management companies (CMCc) including by introducing a senior managers regime, requiring reauthorisation of all CMCs and transferring supervisory responsibility from the Ministry Of Justice to the Financial Conduct Authority. The dates for the transfer will be announced in due course.
Basic Bank Accounts
Nine banks will legally be required to offer basic bank accounts to help people access basic banking services. The government has also committed to publish basic bank account market share data for the first time in Autumn 2016.
Disguised Remuneration Avoidance Schemes
A raft of measures are to be introduced targeted at employers, companies and individuals using tax avoidance schemes that fall within the disguised remuneration legislation.
The measures will also apply to employers, companies and individuals that used an employee benefit trust (EBT) arrangement prior to 2011 and have yet to settle with HMRC.
Some of the measures include:
- inserting an additional targeted anti-avoidance rule.
- the withdrawal of the relief on investment returns.
State Aid Moderation
HMRC is to be given additional powers to collect information on certain state aids and share this information with the European Commission through a legal gateway. The intended purpose of this measure is to allow HMRC to collect additional data to help the UK contribute towards the monitoring of and compliance with state aids. This measure will have effect from 1st July 2016.
If you require clarification of Budget 2016 or would like to speak with one of our advisors, contact us today.