Budget 2016 – personal tax

Personal Tax

Rates and Allowances

The personal allowance will be increased from £11,000 in 2016-17 to £11,500 in 2017-18. This continues to ensure that no-one working 30 hours per week on the National Minimum Wage (NMW) will pay income tax in 2017-18. As a result of the increase, a typical basic rate taxpayer will pay over £1,000 less income tax in 2017-18 than they did in 2010-11.

The higher rate threshold will increase by £2,000 to £45,000 from 2016/17 to 2017-18, resulting in there being 585,000 fewer higher rate taxpayers in 2017-18 than there were at the start of the parliament.

 

ISA Savings

The ISA allowance will rise from £15,240 to £20,000 in April 2017

The Lifetime ISA

The Government have announced a new Lifetime ISA which is designed to help young people save for the long term and ensure they do not have to choose between saving for retirement and saving for their first home. From 6 April 2017 any adult under the age of 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in. Contributions can continue to be made with the bonus paid up to the age of 50. Funds can be used to buy a first home up to the limit of £450,000 with the government bonus at any time from 12 months after opening the account, and can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement. Savers will be able to make withdrawals at any time for other purposes, but with the bonus element of the fund plus any interest or growth on it returned to the government along with a 5% charge.

Help to Save

The scheme will be open to 3.5 million 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 Credit. It will work by providing a 50% government bonus on up to £50 of monthly savings into a Help to Save account. The bonus will be paid after two years with an option to save for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200.

 

Insurance Premium Tax

The standard rate of IPT will be increased from 9.5% to 10% with effect from 1st October 2016.

Stamp Duty on Additional Properties

As part of the Autumn Statement 2015 it was announced that from 1 April 2016, higher rates of Stamp Duty Land Tax (SDLT) will apply to purchases of additional residential properties, such as second homes and buy-to-let properties. The higher rates will be 3% above the current SDLT rates and will apply to purchases of additional residential properties in England, Wales and Northern Ireland.  Purchasers will now have 36 months rather than the originally proposed 18 months to either claim a refund from the higher rates or before the higher rates will apply, in the event that there is a period of overlap or a gap in ownership of a main residence. However, there will be no exemption from the higher rates for significant investors, and the higher rates will apply equally to purchases by individuals and corporate investors

Employment Taxes

National Minimum Wage

The main rate of the NMW, which applies for workers aged between 21 and 24, will be set at £6.95 from October 2016.

Salary sacrifice

Salary sacrifice arrangements enable employees to give up salary in return for benefits in kind. The government is concerned about the growth of salary sacrifice schemes and clearance requests for salary sacrifice arrangements from employers to HMRC have increased by over 30% since 2010. The government is therefore considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. However, the government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.

Off-Payroll Engagement in the Public Sector

Some individuals work through their own limited company and undertake jobs that would ordinarily mean they are employees of the business that they are working for. In these circumstances, there is existing legislation which requires them to pay broadly the same tax as they would do as an employee. However, non-compliance with these rules is costing the taxpayer around £440 million a year. From April 2017, where the public sector engages an off-payroll worker through their own limited company, that body (or the recruiting agency if the public sector body engages through one) will become responsible for determining whether the rules should apply, and for paying the right tax. This is designed to strengthen the public sector’s role in ensuring that the workers it engages comply with the rules.

 

 

Anti- Avoidance

Termination Payments

Currently, some termination payments are exempt from employee and employer National Insurance contributions and the first £30,000 is income tax free.  From April 2018, the government will align the rules so employer National Insurance contributions are due on those payments above £30,000 that are already subject to income tax.

Employee Shareholder Status

To ensure that the benefits for individuals are proportionate and fair, the government have introduced an individual lifetime limit of £100,000 on gains eligible for Capital Gains Tax exemption through ESS. This limit will apply to arrangements entered into on or after 17 March 2016, and will not apply to arrangements already in place.

 

Self Employed

Property and trading income allowances

From April 2017, a new £1,000 allowance will be introduced for property income and trading income. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance.

Class 2 NIC

From April 2018 Class 2 NICs will be abolished which represents an annual tax cut for 3.4 million self-employed people of £134 on average. The government will reform Class 4 NICs, so that self-employed individuals continue to build entitlement to the State Pension and other contributory benefits, following the abolition of Class 2 NICs.

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