Spring Budget 2016 Highlights

16 March 2016 • HMRC News

Today’s Budget Statement introduced a broad range of new measures and changes to the tax landscape.  The headline announcements - and a reminder of the measures coming in from April 2016, April 2017 and beyond - are highlighted below.

Measures introduced from April 2016

Property taxation

From 1 April 2016, the purchase of buy-to-let residential property will attract a 3% surcharge over and above the usual rates of SDLT on purchases of second homes (“additional residential properties”).
In addition, the 10% “wear & tear” allowance is also to be abolished from 6 April.
For commercial property, a new SDLT rate system is to be introduced from midnight tonight.  The first £150,000 will be at 0%; the next £100,000 at 2% and above £250,000 will be 5%.

Tax on Dividends

The major change to the taxation of dividends announced last year will come into effect from 6 April 2016.  The rates of tax applicable to dividend income will increase by 7.5% at all income levels, although this is mitigated to a certain extent by a new £5,000 tax-free allowance for dividends.

Reduction in Capital Gains Tax rates

From 6 April 2016, the rates of Capital Gains Tax will reduce from 18% to 10% for basic rate taxpayers, and from 28% to 20% for higher rate taxpayers.  It is important to highlight, however, that the old rates of 18% & 28% respectively will continue to apply to gains on residential property.  

Loans to participators

The tax payable by close companies on new loans or advances (made on or after 6 April 2016) will increase from 25% to 32.5%, in line will the new tax rate on dividends for higher rate taxpayers.

Pension Allowance

As previously announced the annual pension allowance is to remain at £40,000, however, for those earning more than £150,000 per annum, the pension allowance will be tapered down to a maximum of £10,000 for those earning £210,000 or more.

Entrepreneurs Relief for Investors

Entrepreneurs’ Relief is to be extended for long term investors who subscribe for new shares (after 17 March 2016) in unlisted trading companies and hold these for three years.  There is to be a separate lifetime allowance of £10M available.

Employee Share Schemes

A restriction has been introduced to the CGT exemption on the disposal of ESS shares, acquired after midnight tonight, to a lifetime exempt amount of £100,000.

Proposed measures from April 2017

Property taxation

A restriction on the tax-deductibility of mortgage interest payments for private landlords will be introduced from April 2017 and is to be phased in over four tax years up to 2020/21.

Savings

A new Lifetime ISA is to be introduced for adults under 40 at 6 April 2017.  Individuals will be able to save up to £4,000 per annum and receive a 25% bonus from the Government up to the age of 50.

Corporation Tax 

The corporation tax rate is set to fall to 19% from April 2017 onwards.

In addition, new measures will come into effect from April 2017 onwards applicable to large corporations (i.e. those with profits in excess of £5M per year), restricting the deductibility of losses from earlier years and also the deductibility of interest costs that are allowable. 

Measures for the future

Property taxation

From April 2019, where capital gains tax is due on the disposal of a residential property, payment of the tax will be due within 30 days of completion. This is a significant change from the current Self-Assessment system, under which individuals have up to 22 months until CGT is payable, depending on the time of year of the disposal.

Employment

It is proposed that from April 2018, Employers National Insurance contributions will be payable on termination payments where the amount exceeds £30,000.

National Insurance

From 2018 Class 2 NIC for self-employed will be abolished.  There will be a consultation regarding Class 4 NIC, which are also paid by the self-employed, to consider how to build entitlement to the State Pension and other contributory benefits which used to be covered by the payment of Class 2 contributions.

Corporation Tax

The corporation tax rate is set to fall to 17% from April 2020.  It was previously announced that corporation tax would reduce to 18% from April 2020.

If you would like to explore what today’s Budget Statement could mean for you and your business, please call 020 7731 6163 to talk to one of our tax team. 

 

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