Budget Summary
Capital Gains Tax
One area of particular interest was the surprise announcement in the reduction of a rate cut in capital gains tax (CGT). With effect from 6 April 2016, the rates of CGT are to be cut to 20% (from 28%) and 10% (from 18%).
However, there are exceptions, the reduced rates will not be available on disposals of carried interest and gains on residential properties. These will be subject to an 8% surcharge on the new rates.
Entrepreneurs’ Relief
There is an extension to entrepreneurs’ relief (ER) for “long-term investments” which could benefit those making investments into smaller companies. This will be available to investors (not employees) who subscribe for new shares in an unlisted trading company on or after 17 March 2016. The shares need to have been held continually for a period of three years before disposal. Qualifying gains will be taxed at 10%, subject to a £10 million lifetime limit. This is separate from the existing ER lifetime limit.
Business
From 2018 Class 2 national insurance will be abolished for the self-employed.
From 6 April 2016 the rate of tax payable by close companies on loans to participators will increase from 25% to 32.5%, this applies to loans made after the 6 April 2016. This aligns the rate with the higher rate of tax charged on dividend income and should be a consideration when looking at company year-end tax planning.
Corporation tax will be cut to 17% in 2020, it was originally set to drop to 18%
Business Rates
Another welcome announcement for small businesses was the news that as of 1 April 2017 small business rate relief (SBRR) will double and the SBRR threshold will be raised to rateable values of up to £12,000 tapering to £15,000. The government will aim to introduce more frequent revaluations of properties.
Savings
From April 2017 a new Lifetime ISA will be available for adults under the age of 40. Savers will be able to pay in £4,000 per annum and receive a bonus of 25% up to their 50th birthday. The funds can then be withdrawn from the age of 60 or at any time after the first 12 months if the funds are used to purchase a first home up to £450,000.
Individuals
There will be an increase in the personal allowance for 2017/18 to £11,500 and the higher rate threshold to £45,000
Restriction on landlords’ interest relief
The phased restriction of tax relief on interest payments by residential property landlords will start in April 2017 as already legislated. The Finance Bill 2016 will make some amendments and clarifications to ensure it is operated as intended.
Stamp Duty Land Tax
Commercial
With immediate effect, SDLT payable on commercial properties will be replaced with a progressive rate system, rather than the current slab rate, so that SDLT is charged and paid on the portion of the purchase price in each band. The bands will be: £0 - £150,000 – 0%, £150,001 - £250,000 – 2%, above £250,000 - %. Transactional rules for acquisitions prior to 17/03/2016 will apply.
Residential
Following recent consultation, the additional 3% SDLT payable on the purchase of additional residential properties will apply from 1 April 2016. There will be no exemption from the higher rates for significant investors. Purchasers will have 36 months (rather than the 18 months originally proposed) to claim a refund of the higher rate if they purchase a new main residence before disposing of their previous main residence.
