March 2016 Budget
Below is a summary of the main points announced by the Chancellor of the Exchequer in the March Budget.
Please note that every care has been taken in preparing this summary but no responsibility can be accepted for loss occasioned to any person acting or refraining from acting as a result of the material herein.
Main Tax Rates & Thresholds
The basic personal tax-free allowance is increased to £11,000 (restricted for income in excess of £100,000)
The first £32,000 of taxable income is to be taxed at 20% (or 7.5% for dividends in excess of £5,000).
The next £118,000 is taxable at 40% (or 32.5% for dividends). The balance over £150,000 is taxable at 45% (or 38.1% for dividends).
The basic personal tax-free allowance is £11,500 (restricted for income in excess of £100,000)
The first £33,500 of taxable income is to be taxed at 20% (or 7.5% for dividends in excess of £5,000).
The next £116,500 is taxable at 40% (or 32.5% for dividends). The balance over £150,000 is taxable at 45% (or 38.1% for dividends).
The tax rate applicable to trusts income (excluding dividends) is 45%.
New tax-free allowances have also been announced, meaning that from April 2017 individuals will not pay tax on up to £1,000 of income from occasional jobs or the first £1,000 of property income.
National minimum wage
From April 2016, the national living wage will apply to workers aged 25 and older, at £7.20 per hour. The minimum wage will continue to apply to workers aged 24 and under.
Transferable tax allowances for married couples
For 2016/17, a spouse or civil partner who is not liable to income tax above the basic rate can transfer up to £1,100 of their personal allowance to their spouse/civil partner provided the recipient of the transfer is not liable to higher rate tax.
This will generally only be beneficial where one spouse is non-working or a lower rate taxpayer.
The transferable amount will increase to £1,150 for 2017/18.
Individual Savings Accounts (ISAs)
The ISA subscription limit for 2016/17 is maintained at £15,240. This limit will be increased to £20,000 from April 2017.
A new Lifetime ISA (LISA) will also be introduced from April 2017 for those aged between 18 and 40. This ISA can be used to save for your first home or for your retirement. Any savings put into the ISA before your 50th birthday will receive a 25% bonus from the government. You can save as little or as much as you want each month, up to a maximum of £4,000 per year.
Couples saving for their first home can each have a Lifetime ISA, maximising the amount which can be saved. Existing Help to Buy ISAs can be transferred into the Lifetime ISA in 2017 or kept separate. However, only one of them will be able to use the government bonus to buy a house.
If you opt to save for your retirement, you will be able to access all the savings and accumulated income tax free from your 60th birthday. Withdrawals made before this date will result in the 25% bonus being lost and a 5% charge will also apply.
National Insurance for 2016/17
Class 1 NIC : Employee & Employer – rates & thresholds per week unless stated:
- Lower Earnings Limit: £112.00
- Upper Earnings Limit for employees’ primary Class 1 NICs: £827.00
- Upper Accrual Point: £770.00
- Primary Threshold: £155.00
- Secondary Threshold: £156.00
- Upper Secondary Threshold for U21’s: £827.00
Employee’s (primary) Class 1 contribution rates
Weekly earnings above £155.01 to £827.00: 12%
Weekly earnings above £827.00: 2%
Employer’s (secondary) Class 1 contribution rates
Weekly earnings above £156.00: 13.8%
Class 2 NIC
Self employed NIC: £2.80
Small earnings annual exemption level : £5,965
Class 2 NIC will be abolished from April 2018 at which point Class 4 NIC will also be reformed.
Class 4 NIC
Annual profits below lower profits limit of £8,060 : Nil
Annual profits above £8,060 but below £43,000 : 9%
Annual profits above upper profits limit of £43,000 : 2%
As previously announced, the Employment Allowance will rise to £3,000 from 5 April 2016. In addition, the Employment Allowance will no longer be available where the director is the only employee of the company.
Capital Gains Tax (CGT)
The annual exemption for 2016/17 is £11,100.
From 6 April 2016, the rates of Capital Gains Tax will reduce from 18% to 10% for gains that fall within the basic rate band and from 28% to 20% for gains that fall within the higher rate band.
The current 18%/28% rates will remain in place for chargeable gains on the disposal of residential property which does not qualify for private residence relief.
Stamp Duty Land Tax
A 3% Stamp Duty Land Tax surcharge relating to the purchase of a second or subsequent residential property will come into effect from 1 April 2016. A refund of the surcharge will be available where the first property owned is sold within 36 months of the second property being purchased.
New Stamp Duty Land Tax Rates
With effect from 17 March 2016, the SDLT liability on a purchase of non-residential property will be as follows:
- Purchase price up to £150,000 – Nil
- Purchase price £150,001 to £250,000 – 2% on amount above £150,000
- Purchase price over £250,001 : £2,000 + 5% on amount above £250,000
The Chancellor also announced that there will be a change in the way in which SDLT on non-residential property is calculated to bring it in line with the changes made in 2014 to SDLT on residential property.
ER will be extended to long term external investors in unlisted trading companies. This Investors’ Relief will provide a 10% rate of Capital Gains Tax for gains realised on the disposal of ordinary shares in an unlisted company.
In order to qualify, the shares must be newly issued shares in unlisted companies, acquired on or after 17 March 2016 and held for a minimum of three years from 6 April 2016.
There will be a lifetime limit of £10 million on the amount of capital gains which qualify for relief.
Corporation tax rates for UK companies will reduce from the current 20% to 19% on 1 April 2017 and the rate of corporation tax will be reduced further to 17% by 2020.
From April 2017, 100% Small Business Rate Relief will be extended from the current £6,000 limit to cover all small businesses that occupy property with a rateable value of £12,000 or less.