Employment Taxes

The UK has a higher incidence of low pay than other advanced economies: 1 in 5 UK workers is low-paid, compared to an average of only 1 in 6 among OECD countries.

A new National Living Wage (NLW) of £7.20 for workers aged 25 and above will be introduced from April 2016, an increase of 70p to the current NMW rate and based on the OBR’s earnings forecasts the NLW will reach the government’s target of over £9 by 2020. This will mean a direct boost in earnings for 2.7 million low wage workers. The wages of workers under the age of 25 will continue to be based on the National Minimum Wage Rates.

To help offset the additional cost for employers, the National Insurance contributions (NICs) Employment Allowance will be increased from £2,000 to £3,000 a year however from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.

Personal Taxes

Personal Allowances will be increased from £10,600 to £11,000 in 2016-17 and £11,200 from 2017-18. The Chancellor has pledged to raise the personal allowance to £12,500 by the end of this parliament. As a result, a basic rate taxpayer will be £80 better off in 2016-17 compared to 2015‑16, and £905 better off compared with 2010

Higher Rate Tax Thresholds will be increased so that the level at which the higher rate of income tax kicks in will be increased from £42,385 to £43,000 for 2016-17 , £43,600 for 2017-18. These changes will lift 130,000 individuals out of higher rate tax by 2016-17 compared to 2015-16. A typical higher rate taxpayer will benefit by £142 in 2016-17 and will be £818 better off compared to 2010.

Tax on Dividends

The Dividend Tax Credit will be abolished from April 2016 and a new Dividend Tax Allowance of £5,000 a year will be introduced. 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 and 38.1% for additional rate taxpayers. While these rates remain below the main rates of income tax, those who receive significant dividend income – for example due to very large shareholdings (typically more than £140,000) or as a result of receiving significant dividends through a closed company will pay more.

Pensions

From April 2016  the Annual Allowance will be tapered for those with adjusted annual incomes, including their own and employer’s pension contributions, over £150,000. For every £2 of adjusted income over £150,000, an individual’s Annual Allowance, the limit on the amount of tax relieved pension saving that can be made by an individual or their employer each year, will be reduced by £1, down to a minimum of £10,000.

In addition, Lifetime Allowance for pension contributions will be reduced from £1.25 million to £1 million from 6 April 2016. Transitional protection for pension rights already over £1 million will be introduced alongside this reduction to ensure the change is not retrospective.

Non- Doms

The government believes that non-domiciled individuals who choose to live in the UK for a long period of time should pay taxes here like everybody else. Therefore from April 2017, anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed UK-domiciled for tax purposes. Furthermore, it will no longer be possible for somebody who is born in the UK to parents who are UK domiciled to claim non-domicile status if they leave but then return and take up residency in the UK. These changes will bring an end to the permanent non-domicile status. In addition, from April 2017 the government will also introduce new rules so that everybody who owns residential property in the UK and would otherwise pay inheritance tax on that property cannot avoid paying it by holding it in an offshore structure.

Students

From the 2016-17 academic year, maintenance grants will be replaced with maintenance loans for new students from England, paid back only when their earnings exceed £21,000 a year, saving £2.5 billion by 2020-21.

Maintenance loan support will rise for students from low and middle income backgrounds up to £8,200 a year for those who are studying away from home, outside London..