Please feel free to get in touch

Support Material

2016 Budget Statement 

Our Summary

Today the Chancellor delivered a Budget that, while not quite living up to the hype, has provided a couple of surprises along the way.  In the four months since the 2015 Autumn Statement economic growth has dipped and thoughts have moved on to the implications of Britain’s future in, or indeed out of, the EU.
In light of this the UK’s growth forecast has been revised downwards and the Chancellor has issued a strong warning that leaving the EU will put the economy at greater risk. The intention remains to reduce the national deficit, and return the country to surplus by the end of the current Parliament in 2020.  The Chancellor was keen to emphasise that “this is a budget for the next generation”, giving new opportunities to savers under 40, families and small businesses including internet start-ups. 

Our summary sets out the main changes to tax rates and allowances for individuals, companies and trustees. It also aims to identify other notable changes which may be of interest to advisers.

Income Tax

  • The tax-free personal allowance, which is set to rise to £11,000 on 6 April 2016, will be increased to £11,500 from 6 April 2017.

  • The government will increase the higher rate tax threshold to £43,000 from 6 April 2016 and then to £45,000 from 6 April 2017.

  • The first £30,000 of a termination payment is currently and will remain exempt from income tax and the full payment will be outside the scope of employee NICs. However, from April 2018, the government will tighten the scope of the exemption to prevent manipulation and align the rules so employer National Insurance contributions are due on those payments above £30,000, which are already subject to income tax.

  • The government is concerned about the growth of salary sacrifice arrangements and is considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice arrangements. However, the government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.

  • From April 2017, the government will introduce a new £1,000 allowance for property income and a £1,000 allowance for trading income. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance.


Capital Gains Tax (CGT)

  • The annual exempt amount available from 6 April 2016 will remain at the current level of £11,100.

  • An unexpected announcement was that from 6 April 2016, the higher rate of CGT will be reduced from 28% to 20%, and the basic rate will be reduced from 18% to 10%.

  • However the 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property.

  • The government will introduce an individual lifetime limit of £100,000 on gains eligible for CGT exemption through the Employee Shareholder Status. This limit will apply for arrangements entered into on or after 17 March 2016.

 

Inheritance Tax (IHT)

  • Little mention was made on the inheritance tax front, with the nil rate band being frozen at £325,000 until 2021 and the new residence nil rate band having been previously announced.

 

Corporation Tax

  • The corporation tax rate will be reduced to 17% in 2020.
     

Pensions

  • As announced in last year’s Budget the pensions lifetime allowance will reduce from £1.25m to £1m from 6 April 2016. This is in the Finance Bill 2016.

  • Consultation on pension tax relief – as we know already there are no major changes to pension tax relief. That said the government has published responses to the consultation (see Summary of responses to pensions tax relief consultation).

  • Pensions dashboard by 2019 – pensions can be confusing and people often lose track of what they’ve got and where. As a result the government will ensure the industry designs funds and launches this digital interface where an individual will be able to view all their retirement savings in one place.

  • The Money Advice Service, The Pensions Advisory Service and Pension Wise will be restructured to ensure that consumers can access the help they need to make effective financial decisions.

  • There will be an increase to the tax and NICs relief available for employer-arranged pension advice from £150 to £500 from April 2017 – this will ensure that the first £500 of any advice received is eligible for the relief.

  • A consultation over the introduction of a ‘pensions advice allowance’ to allow people to withdraw savings, before the age of 55, to pay for regulated advice is to be launched. Up to £500 can be withdrawn tax free from defined contribution (DC) pensions to redeem against the cost of such financial advice.

  • Technical amendments to legislation on pension freedoms will be made - such as re-aligning the tax treatment of serious ill health lump sum payments with lump sum death benefits and the ability to convert dependant’s flexi-access drawdown pensions to a nominees account when the dependant reaches age 23 so that individuals do not have to take funds as a taxable lump sum.

  • The changes to SDLT will impact commercial property held as an asset in a registered pension scheme and will normally cut SDLT costs.

  • No changes in terms of pensions and salary sacrifice arrangements – see Income Tax section for details of what is being looked at.
     

ISAs

  • While the ISA allowance will not increase from the current level of £15,240 on 6 April 2016 there will be a significant increase to £20,000 from 6 April 2017.

  • In order to help young people save flexibly for the long term and ensure they do not have to choose between saving for retirement and saving for their first home from 6 April 2017, any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in. Investor contributions can continue to be made with the bonus paid up to the age of 50. Funds can be used to buy a first home (max value £450,000) with the government bonus at any time from 12 months after opening the account, and can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement.

  • The government proposes that Lifetime ISA savers can make withdrawals at any time for other purposes, but with the bonus element of the fund plus any interest or growth on it returned to the government, and a small 5% charge applied. The government will also explore with the industry whether there should be the flexibility to borrow funds against the Lifetime ISA without incurring a charge if the borrowed funds are fully repaid. Also up for consideration will be whether Lifetime ISA funds plus the government bonus can be withdrawn in full for other specific life events in addition to buying a first home.
     

National Insurance

  • From April 2018, Class 2 NICs will be abolished.

  • The government will reform Class 4 NICs, so that self-employed individuals continue to build entitlement to the State Pension and other contributory benefits, following the abolition of Class 2 NICs.
     

Investment Bonds and Life Policies

  • There is desire to change the current tax rules for part surrenders and part assignments of life insurance policies to prevent what are perceived as excessive tax charges arising on these products. The government will consult later this year on alternatives to the current rules with a view to legislating in Finance Bill 2017.

  • In addition the government will also consult later this year on changes to the categories of assets that life insurance policyholders can choose to invest in without giving rise to an annual tax charge under the personal portfolio bond legislation.

Stamp Duty Land Tax (SDLT)

  • SDLT is changing for non-residential property transactions which complete on or after 17 March 2016. The rates will apply to the value of the property over each tax band and these 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. This will cut the tax for many businesses purchasing property.

  • As already announced an extra 3% SDLT will be charged on purchases of additional residential properties costing more than £40,000 from 1 April 2016.  For example, this will affect properties bought as buy-to-lets and second homes. 

Miscellaneous

  • The VAT registration threshold will increase in line with inflation to £83,000 from 1 April 2016.

  • In an attempt to tackle childhood obesity, there will be a new soft drinks industry levy for producers and importers of soft drinks containing added sugar.  This is expected to raise £520 million in the first year which will help to pay for extra sports in schools.

  • The insurance premium tax standard rate will rise from 9.5% to 10%.  This will be used to pay for increased maintenance expenditure and an investment of over £150m in areas badly affected by flooding such as Leeds, Cumbria and Calder Valley.

  • Small business rate relief will be permanently doubled in England from 1 April 2017.  Thresholds will also be increased to £12,000 for 100% relief and £15,000 for tapered relief.  It is estimated that 650,000 businesses will benefit from either paying no business rates, or paying a tapered amount.

  • Duty on spirits, beer and most ciders will be frozen.  Duty on wines and higher strength ciders are to increase by RPI from 21 March 2016.

  • Money Advice Service, The Pensions Advice Service & Pension Wise are to be restructured to include a new pensions guidance body, to ensure that consumers are able to have their pension questions answered in one place no matter what stage of life they may be at. A new money guidance body will be charged with identifying gaps in the financial guidance market.

  • A review on women in financial services, which looks at the representation of women in senior managerial roles in the financial services industry, is to be published on 22 March 2016.

  • Being Brunel - £620,000 is going to support the National Brunel Project, a new public museum and visitor centre in Bristol.


Inevitably, the impact of some of these changes will gradually become clearer and further details of changes will emerge as new information becomes available. In the meantime if you have any questions regarding any of the above, please email technical@sanlam.co.uk

March 2016

Please Remember...

This note is for use by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam Investments and Pensions accepts no liability for any action taken or not taken by any individual or firm as a result of the contents of this material. Whilst we have made every effort to ensure the accuracy of this material we cannot accept responsibility for any consequences (financial or otherwise) arising from relying on it.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.