The Budget 2016.
Last week saw the chancellor deliver his latest budget, here’s a summary of the key points.
According to the Government, this year will have seen the deficit cut by almost two thirds from its peak. The target for the next 4 years is to eliminate the deficit and the government will be running a surplus – where more tax is raised than is spent. There will be a further £3.5 billion of savings from departmental spending in 2019-20, and there will be an efficiency review to inform future spending decisions.
Soft drinks companies will pay a levy on drinks with added sugar from April 2018. This will apply to drinks with total sugar content above 5 grams per 100 millilitres, with a higher rate for more than 8 grams per 100 millilitres. This won’t need to be paid on milk-based drinks or fruit juices. Revenue from this levy will be used to double the primary PE and sport premium to £320 million a year.
A quarter of secondary schools will be able to opt in to a longer school day from September 2017 so that they can offer a wider range of activities for pupils, and by the end of 2020, every school in England will be taken out of council control. The current system for funding schools will also be replaced by a national funding formula from April 2017.
From April 2017, any adult under 40 will be able to open a new Lifetime ISA. Account holders can save up to £4,000 each year and savers will receive a 25% bonus from the government on this money. Money put into this account can be saved until the age of 60 and used as retirement income, or it can be withdrawn to help buy the first home. The total amount you can save each year into all ISAs has also be increased from £15,240 to £20,000 from April 2017.
In terms of tax, the Personal Allowance, the amount of income you can earn before you start paying Income Tax, will move from its current £10,600 to £11,000 in 2016, and then increase further to £11,500 in April 2017. The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.
£60 million has been announced to develop plans to cut journey times to around 30 minutes between Leeds and Manchester, as well as improving transport connections between other cities in the north. Crossrail 2 route connecting South-West and North-East London, should also increase tube capacity and reduce the pressure on stations.
From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one income from property you own. People who make up to £1,000 from occasional jobs – such as sharing power tools, providing a lift share or selling goods they have made – will no longer need to pay tax on that income. In the same way, the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free.
In terms of duty rates on beer, spirits and most ciders will be frozen this year. Fuel duty will be frozen again in 2016-17, saving the typical motorist £75 a year.
Over the next 5 years, the government suggests it will raise nearly £8 billion from large companies and multinationals through changes to the rules on interest and other measures, including preventing multinational companies avoiding paying tax in any of the countries they do business in, a technique called hybrid mismatches. The Government will be taxing outbound royalty payments better – these are fees for using intellectual property like patents and copyrights – meaning multinationals pay more tax in the UK and there are measures to ensure offshore property developers are taxed on their UK profits.
In 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. Currently, this 100% relief is available if you’re a business that occupies a property (e.g. a shop or office) with a value of £6,000 or less. There will be a tapered rate of relief on properties worth up to £15,000. This means that a projected 600,000 businesses will pay no rates.
There are changes for Capital Gains Tax, a tax on the gain you make when you sell something (an ‘asset’) that has gone up in value. It is paid at a basic or higher rate depending on the rate of Income Tax you pay. From April 2016, the higher rate of Capital Gains Tax will be cut from 28% to 20% and the basic rate from 18% to 10%. There will be an additional 8 percentage point surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers). Capital Gains Tax on residential property does not apply to the main home, only to additional properties (for example a flat that you let out).
From April 2018 employers will now need to pay National Insurance contributions on pay-offs (for example, termination payments) above £30,000 where Income Tax is also due. For people who lose their job, payments up to £30,000 will remain tax-free and they will not need to pay National Insurance on any of the payment.
The main rate of Corporation Tax has already been cut from 28% in 2010 to 20%, and it will now be cut again to 17% in 2020. Class 2 National Insurance contributions (NICs) for self-employed people will be scrapped from April 2018. From April 2018, the Self employed will only need to pay one type of National Insurance on their profits. Paying Class 2 NICs currently enables self-employed people to build entitlement to the State Pension and other contributory benefits and from April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.
The way stamp duty on freehold commercial property and leasehold premium transactions is calculated will change. Currently, these rates apply to the whole transaction value. From 17 March 2016 the rates will apply to the value of the property over each tax band. The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000. Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million.
The standard rate of Insurance Premium Tax will rise from 9.5% to 10%, the proceeds of which will go to helping flood defences.