Budget 2016 Summary

George Osborne gave his seventh Budget as the Chancellor today, the first Conservative Budget since 1996.  Mr Osborne said his Budget would “put security first” and was “for the working people”, describing it as a “one nation Budget for the benefit of the whole of the UK”.

A number of welfare cuts were made, as predicted, and a number of tax changes were also announced as predicted.  There were however, a number of surprises:

Businesses

  • The annual investment allowance, which gives tax relief on plant and machinery to businesses in the year of expenditure, will still fall in January 2016 from £500K, but will decrease to a fixed level of £200K, rather than the variable level of £25K.
  • Corporation tax rate to fall further from 20% to 19% from April 2017, and to 18% by 2020.
  • Increase in the Employment Allowance to £3,000 per annum from April 2016.
  • Included in the press releases, but not announced, no CT relief on goodwill purchased from third parties on or after 8 July 2015 unless it is later sold.
  • Stop companies from increasing stock values for tax purposes.
  • Tackle disguised employment by the use of personal service companies.
  • Stop the use of losses in controlled foreign companies.
  • Corporation tax payment dates brought forward for businesses with profits of more than £20 million.
  • Reduction in the bank levy rate over 6 years.
  • New 8% surcharge on bank profits from January 2016.
  • Increase in insurance premium tax to 9.5% from November 2015.
  • Apprenticeship levy to be introduced on large firms to encourage the provision of training.

Individuals

  • Increase in tax free personal allowance from £10,600 to £11,000 from April 2016.
  • Higher rate tax to apply from £43,000, rather than £42,385, from next year.
  • Abolition of the permanent non-dom tax status, with anyone living in the UK for more than 15 years being taxed on worldwide income and gains from April 2017.
  • A surprise announcement to restrict tax relief to the basic rate of tax only for mortgage interest paid on buy to let residential properties, to be phased in over 4 years from April 2017.
  • Rent a room relief to be increased from £4,250 to £7,500 from April 2016.
  • A new IHT allowance of £175K from April 2017 available where the family home is left to a child or grandchild, meaning couples will get an IHT nil band of up to £1 million, to be tapered where estates are more than £2 million.  To be retained even where the family home is downsized.
  • Changes to be made to the taxation of dividends, with the current 10% tax credit being abolished and the first £5,000 of dividend income to be tax free; basic rate tax payers will then pay 7.5% on dividend income, 32.5% by higher rate payers and 38.1% for super rate tax payers.  This means that someone taking dividends only from their companies will no longer be able to receive that income tax free.
  • A reduction to the pension annual allowance for super rate tax payers from April 2016.
  • A green paper on pension saving will be released, which could produce radical changes.
  • Student maintenance grants to be replaced with loans from 2016/17.
  • Changes to be made to tax credits, with no tax credits or universal credits payable on a third child born after April 2017.
  • A new Welfare and Work Bill to be issued tomorrow.
  • Increase in VED for brand new cars from April 2017, with VED to fund road building.
  • New National Living Wage (i.e. Minimum Wage) of £7.20 per hour to be introduced from April 2016, increasing to £9 by 2020 for the over 25s.
  • BBC to take on the cost of the TV licence for the over 75s.

A more detailed review of the Summer Budget and the forthcoming measures already announced will be available tomorrow.

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