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George’s Balancing Act

Introduction
Another political budget, with one eye on the EU referendum, and another on the looming battle to replace David Cameron as Tory party leader. George Osborne has to avoid alienating the general public, AND keep as many Tory MPs on his side, so they vote for him when David Cameron’s long announced retirement as PM takes effect.

So what has George pulled out of his magician’s hat?

Overview
The budget has been delivered against a backdrop of slowing growth, and concerns about the global economy. There has been a significant amount of prior publicity, so we knew some of what was coming. It’s been described as a “budget for the next generation”, which basically means the Chancellor is appealing to the under 40s.

The following report highlights some changes that you need to factor in to your forward planning.

Changes affecting individuals
Stamp Duty Land Tax
We were promised the result of the recent consultation on the new SDLT regime, which takes effect on 1 April 2016. While this could be reported under Changes Affecting Landlords, the impact will be much wider.

Anyone buying a second home from April will be subject to the new 3% additional charge. This affects not only buy-to-let purchases, but also parents buying homes for their children, and homeowners who buy a new home before selling their own (although they can get the extra SDLT back if they sell within 36 months). It could also affect couple buying a home together where one partner already owns their own home.
The additional SDLT will not apply if you buy a replacement property within 36 months, even if you owned more than one before the sale of the property which is subsequently replaced.

Exemptions have been introduced for:

  • Married couples who are separating and having to buy another place to live.
  • People buying a property who own 50% or less of another property that was inherited within the last 36 months.
  • Replacement of a main residence within 18 months of selling their old main residence, even if they already own another property.

Income tax
The increase in the personal allowance (to £11,000) is welcomed, if you earn over £10,600 per year. This will save £80 for a basic rate taxpayer. The allowance is rising to £11,500 in 2017/18. The aim is to get it to £12,500 by 2020/21.

The higher rate threshold will increase to £43,000 from next month, then £45,000 in April 2017. The government are aiming for a threshold of £50,000 by the end of this Parliament (May 2020).

The amount of Marriage Allowance that can be transferred is increased to £1,100, meaning the saving increases to £220 from £212 this year.

Savings and pensions
The threatened attack on pension saving has been deferred.

A new “Help to Save” scheme has been announced. Savers on some tax credits will be given bonuses if they save more than £50 per month. In principle, it is similar to the “Help to Buy” scheme, but is less generous and you do not need to buy a house with the savings.

A new “Lifetime ISA” is to be introduced in April 2017.

Anyone aged 18 – 40 can open an account, and receive a bonus of 25% of the amount saved before their 50th Birthday. However, the bonus is capped at £1,000 per annum.

The bonus, and any growth on it, are clawed back if funds are withdrawn before your 60th Birthday. There is also a 5% charge on any funds withdrawn before the holder’s 60th Birthday. Funds can be used to buy a house without penalty, after 12 months.

The government are exploring whether other life events could be funded without penalty, and if holders may borrow against the security of the fund, as long as any loan is repaid.

The limit for saving into a general ISA is rising to £20,000 in April 2017.

Capital Gains Tax
The rate of CGT will drop from 28% to 20% (for a higher rate taxpayer) and from 18% to 10% (for a basic rate taxpayer) from April 2016. The reduced rates do not apply to taxable gains on residential property and capitalised interest (which is just disguised income).

The 10% rate under Entrepreneurs Relief has been extended to shareholders who acquire newly issued shares after today, and hold them for at least three years after 6 April 2016.

Insurance Premium Tax
IPT will rise from 9.5% to 10%, with the extra cash being spent on flood defences.

Sugar levy
A new levy on soft drinks, based on their sugar content is expected to raise £520 million. This will fall as producers switch to lower sugar alternatives, and education consumers to buy more healthy alternatives. The monies raised will be spent in improving sport in primary schools, funding extended school-based activities and encouraging breakfast clubs.

Additional changes affecting landlords
Landlords are subject to income and capital gains taxes or corporation tax, depending on which structure they use for their property interests
.
Wear and tear allowance
From April, landlords will only be able to deduct the actual amount spent of repairs and replacements in their rental portfolio. Until now, you have been able to deduct an allowance of 10% of the rent (less council tax/rates if paid)

Property income exemption
A new exemption has been announced.  Landlords with small amounts of income will be able to deduct £1,000 from their income, instead of the actual expenditure.

Changes affecting businesses
The Chancellor has announced a Business Tax Roadmap, which sets out where he expects to take business taxation over the rest of the Parliament. This is a clear attempt to provide some certainty in the tax arena in the run up to the EU referendum. Uncertainty is a big enemy of investment, so anything that reduces it is to be welcomed, even if the roadmap shows increasing taxes. (You can always plan around the hikes if you know they’re coming).

Corporation tax
Currently 20%, it will reduce to 19% on 1 April 2017, and to 17% (was 18%) on 1 April 2020.

Business Rates
The threshold for receiving 100% rates relief has been increased from a rateable value of £6,000 to £12,000. Between £12,000 and £15,000, a tapered rate will apply. The changes take effect from April 2017.
Future increases will be referenced to CPI, rather than the higher RPI figure. While quite technical, it will cut the rate of increase in the business rate burden.

Class 2 NIC
This small levy has been abolished, with effect from April 2018.

SDLT
The treatment of non-residential property is being brought into line with that for residential property. SDLT will be charged on that slice of the purchase price within bands as follows:

Purchase price
£
Rate applying to slice
%
Up to £150,000 0
£150,001 – £250,000 2%
£250,001 – £500,000 5% (was 3% on whole price)
Over £500,000 5% (was 4% on whole price))

A purchase price of £250,001 will now give rise to a SDLT liability of just £2,000.05, instead of £7,500. At £500,001, the liability falls from £25,000.05 to £14,500.05.

Termination payments
From April 2018, new rules will ensure some termination payments that currently avoid NIC will be subject to the 13.8% employer NIC charge. More on this during 2016/17.

Salary sacrifice arrangements
The Government has been concerned about the 30% increase in arrangements since 2010, but remain committed to allowing pension contributions, cycle to work schemes and child care schemes to be included in a sacrifice arrangement.

IR35
Although specifically targeted at the public sector, there is to be a consultation on a simpler set of rules to determine whether a worker using his/her own company should be subject to the rules known as IR35.

 

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