There were a number of tax cuts in the Budget, which is welcome news for savers, investors and small businesses.
We received a lot of enquiries from clients concerned that Osborne would reduce the tax free cash lump sum from pension funds, but as we predicted this yet again was not affected in the Budget. The much publicised “U-Turn” on overhauling pension tax relief was also confirmed, but there are signs that the Government is moving towards the idea of a Pension ISA, with the introduction of new Lifetime ISAs (LISAs).
No changes were made to the taxation of pension benefits, nor to tax relief on pension contributions.
The ISA allowance will be increasing from £15,240 to £20,000 from 6th April 2017.
A new type of ISA, termed a “Lifetime ISA (LISA)” is being launched on 6th April 2017.
• Only available to the under 40s.
• Includes a 25% Government top up at the end of each tax year.
• Contributions will be limited to £4,000 each year and the Government will add up to £1,000 (£25 added for every £100 saved).
• The top up will cease at age 50.
• LISA contributions will count towards the total ISA savings limit.
• Funds can be accessed tax free after the age of 60 without losing the “bonus”.
• The funds can can also be used to buy a first home with the Government “bonus” at any time from 12 months after opening the account.
• The national limit on property purchases for this tax treatment to apply will be £450,000.
• Government considering other lifetime events for access without penalty.
• Anyone already saving in a help to buy ISA will be able to transfer their existing savings to the new LISA.
• Accessing savings before age 60 for other reasons will be allowed but the Government Bonus, and the growth on it, will be lost. There will also a 5% tax charge applied on the amount withdrawn.
Income Tax & National Insurance
In April 2017, the Personal Allowance will rise from £11,000 to £11,500.
The level of income at which Higher Rate tax will apply will rise from £43,000 to £45,000.
These two changes will see the take home pay of higher rate taxpayers increase by £500 each year, while for basic rate taxpayers the increase will be £100 each year.
From April 2018, self-employed individuals will no longer have to pay Class 2 NICs (currently £2.80 per week). They will still have to pay Class 4 NICs, which will be reformed to allow them to build up an entitlement to State Pension and other contributory benefits.
Redundancy payments in excess of £30,000 will be subject to employer’s National Insurance, as well as Income Tax.
Capital Gains Tax
Capital Gains Tax (CGT) is being cut with effect form 6th April 2016, as follows:
• 10% where an individual is not a higher rate tax payer (previously 18%)
• 20% where the investor is a higher rate taxpayer, or the gain takes them into the higher rate band (previously 28%)
CGT on Trustees and legal personal representatives also falls to 20%.
However, landlords or second property owners will continue to pay 18% or 28% on any gains when they come to sell.
In addition, entrepreneurs’ relief will be extended to long term investors in unlisted companies. This will provide a 10% rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.
Corporation Tax is being reduced further in 2020 to 17%.
16th March 2016