Posts Tagged ‘Budget’

Budget Statement 8 March 2017

Thursday, March 9th, 2017

Personal Tax and miscellaneous matters

Personal Tax allowance

The personal allowances for 2017-18 is £11,500 (2016-17: £11,000).

Transferrable allowances

The maximum amount of free personal allowance that can be transferred between spouses is increased to £1,150 in 2017-18. Couples can only make a claim if one partner has spare personal tax allowance and the other is a basic rate tax payer.

Income Tax rate bands

The levels for 2017-18 are:

  • For 2017-18 – £45,000 (the UK apart from Scotland)
  • For 2017-18 – £43,000 (Scotland)

If your income before allowances exceeds these amounts you will be paying 40% Income Tax on the excess (this assumes that you are only entitled to the basic personal allowance).

The threshold at which the 45% rate starts is unchanged at £150,000.

For yet another year there were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).

Dividend allowance to be reduced

From 6 April 2018, the tax-free dividend allowance of £5,000 is to be reduced to £2,000. Director shareholders of small companies that have adopted the strategy of minimising salary and maximising dividends will likely pay more Income Tax on their dividend income because of this change.

Capital Gains Tax (CGT)

There are no changes to the basic CGT rates for 2017-18. The CGT on the disposal of chargeable assets, apart from residential property, remains at:

  • 10% on disposals that form part of the basic rate band.
  • 20% on disposals that form part of the higher rate band.

The higher rates (18% and 28%) will continue to apply to disposals of residential property subject to this tax and carried interest. Gains on a disposal of your home will continue to be exempt. The annual exempt amount for 2017-18 is £11,300 (2016-17: £11,100).

Money Purchase Allowance reduced to £4,000 from £10,000

This will restrict the amount of tax relieved contributions that can be made by an individual, into a money purchase arrangement, who has accessed their pension savings from April 2017.

Reminder for non-doms to be bought into the IHT net

A reminder, that from April 2017, Inheritance Tax will be charged on all UK residential property even when indirectly held by a non-domiciled person through an off-shore structure.

Excise duties

Duty on wine, beer, spirits and alcohol will increase in line with the Retail Prices Index from 13 March 2017. These measures will typically add 2p to the price of a pint of beer, 1p to the price of a pint of cider, 36p to a bottle of whisky and 10p to a bottle of wine.

Tobacco duty rates

Changes to excise duties mean that a pack of twenty cigarettes will increase by an average of 35p, an additional 17p per 10 grams of cigars, and a 35-gram pouch of tobacco by 42p.

Fuel duty

There will be no increase in fuel duties. At the end of 2017-18 this will be the 7th year fuel duty has been frozen.

New National Savings investment clarified

From April 2017, individuals aged 16 years or older will be able to invest in the new NS & I Investment Bond. It will be available for one year from April 2017. Minimum deposit is £100, maximum deposit allowed £3,000. The rate of interest applied is 2.2%.

Lifetime ISA previously announced

From April 2017, any person aged from 18 to 40 will be able to save into a new Lifetime ISA until the age of 50.

Up to £4,000 can be saved each year and savers will receive a government bonus of 25% – that is a bonus of up to £1,000 a year.

Some or all of the money can be used to buy a first home, or it can be kept until age 60.

Accounts will be limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together. If a saver has a Help to Buy ISA it can be transferred into the Lifetime ISA in 2017, or savers can continue saving into both, but it will only be possible to use the bonus from one to buy a house.

After your 60th birthday you can take out all the savings tax-free. You can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 25% charge.

ISA limit from April 2017

The ISA savings limit for 2017-18 is confirmed as £20,000.

Business tax changes

Corporation Tax rate

The main rate of Corporation Tax from 1 April 2017 will be reduced to 19%. A further reduction has been announced to 17% from 1 April 2020.

NIC increases for the self-employed

To narrow the perceived imbalance in NIC charges for the employed and self-employed, Philip Hammond announced increases in the self-employed Class 4 NIC contributions.

The increases are:

  • From April 2018, an increase from 9% to 10%, and
  • From April 2019, a further increase from 10% to 11%.

The earlier increase is timed to coincide with the cessation of Class 2 contributions.

Business rates increases

In response to the negative publicity regarding increases in business rates in England, particularly for retailers, the Chancellor has stepped in with help for smaller businesses.

There are three areas of relief announced:

  1. Small businesses that find they are losing Small Business Rates Relief from April 2017, will have any annual rates increase capped at the higher of £600 or the transitional relief cap.
  2. Local authorities will be funded to provide an element of discretionary relief, and
  3. Public houses with a rateable value of up to £100,000 will benefit from a fixed £1,000 business rate discount – subject to State Aid limits if multiple properties are owned. This discount is available for one year from April 2017.

Local authorities will be fully compensated for any loss of income because of these measures.

Making Tax Digital

The Chancellor announced a one year deferral from Making Tax Digital for Business for unincorporated businesses and landlords with turnovers below the VAT threshold. This means that businesses, self-employed people and landlords with income of less than the VAT threshold will not have to start quarterly reporting until 2019.

Changes to trading and property income allowances

The two previously announced £1,000 tax-free allowances for small scale trading or letting will still be introduced from April 2017, but will now include restrictions if the income or rents are generated by dealings with companies or partnerships of which the recipient is a participator or partner.

Loss relief reform

Legislation is to be introduced to reform the rules governing corporate losses carried forwards from earlier periods. The changes will:

  • Allow more flexibility by relaxing the way companies can use carried forward losses from 1 April 2017.
  • Restrict the set-off of losses such that profits cannot be reduced by more than 50%. This restriction will apply to companies or groups with profits of more than £5m.

Corporation Tax relief for museums and galleries

Rates for 2017-18, already announced, are 25% for touring exhibitions and 20% for non-touring exhibitions. Following consultation, the draft legislation is to be amended to allow for exhibitions that have a performance element, but where the live performance is not the main focus of the exhibition.

VAT registration and deregistration limits

From 1 April 2017:

  • Registration threshold increased to £85,000
  • Deregistration threshold increased to £83,000

Avoidance and evasion

The government will continue to challenge and seek to overturn artificial arrangements whose sole purpose seems to be a reduction of tax.

The budget crystal ball

Wednesday, March 8th, 2017

Today Philip Hammond will present his first budget to parliament; forecasting any changes he may be considering to the UK tax system is perhaps unwise.

If he remains committed to austerity, anticipating any potential fall-out from the Brexit process and maintaining (or more likely slowing down) the repayment of national debt, it is difficult to see where savings can come from to fund tax give-aways.

Most of the annual tax allowances for 2017-18 have already been published so what we may see are commitments to ease taxation in future years. There have been rumours that the UK may be promoted as a low-tax area to draw non-EU business to the UK after Brexit. Perhaps we will see a promise to reduce corporation tax below 17%, the rate it is predicted to be from April 2020, or bring forward the reduction to 17%.

Other predictions include:

  • Increasing stamp duty thresholds for first-time buyers.
  • Setting a fixed rate for pensions tax relief – 33 per cent has been mooted.
  • Taking the sting out of the recently announced business rate increases.
  • Efforts to simplify tax compliance for businesses.

Additionally, we may see a start towards the alignment of rules for NIC and income tax, removing or closing the disparity between the overall tax and NIC payable by the self-employed and employed persons.

In some respects, tax payers, their advisors and HMRC have their hands full implementing tax changes already announced. Most impactful is Making Tax Digital and the necessity for the self-employed to make quarterly data uploads from April 2018.

Many of us are hoping that Mr Hammond will opt for a gently-gently approach. By this time next week, we will know if he agrees.

What was in the Budget

Wednesday, May 4th, 2016

Our government have selected their top-ten tax changes that come into effect from 6 April 2016. Just in case you need a refresher they are:

1.The personal allowance will increase to £11,000 and the higher rate threshold will increase to £43,000.

2.The marriage allowance, the tax free amount which people can transfer to their husband, wife or civil partner will increase to £1,100

3.People renting out a furnished room in their home won’t pay tax on the first £7,500 of this rent; up from £4,250 last year

4.Fuel duty remains frozen for the sixth year in a row

5.A new National Living Wage of £7.20 an hour for workers aged 25 and above was introduced from 1 April 2016

6.A new personal savings allowance of £1,000 (or £500 for higher rate taxpayers) is being introduced for the income that people earn on savings

7.Savers will now be able to take money out of an ISA and put it back in later in the year without losing ISA tax benefits

8.Employers will no longer pay employer National Insurance Contributions (NICs) for apprentices aged under 25 who are paid less than £43,000 a year

9.Businesses and charities will have their employer National Insurance bill cut by another £1,000 from April 2016, as the employment allowance rises from £2,000 to £3,000

10.Charities will be able to claim a 25% government top up through the Gift Aid Small Donations Scheme on up to £8,000 – a £3,000 increase.

Buy-to let sector suffers another blow

Wednesday, March 23rd, 2016

The Treasury seems to be committed to wringing the last available drop of tax revenue from the buy-to-let sector.

In the Budget last week the rate of capital gains tax (CGT) was reduced from 6 April 2016.

  • From 28% to 20%  if the gains fell to be taxed as part of the higher rate tax band, and
  • From 18% to 10% if the gains fell to be taxed as part of the basic rate tax band.

But this excluded gains on disposals of residential property. Thankfully, the principle private residence relief for home owners is untouched – sale of your home is still tax free. However, other residential property sales will be taxed at the 18% and 28% CGT rates.

This de facto tax increase for landlords follow hard on the heels of previous changes to the taxation of the letting sector.

  1. From 6 April 2017, tax relief for mortgage interest to fund the purchase of residential property for letting will be reduced over a number of years until landlords are restricted to a basic rate tax credit. This could potentially more than halve the tax relief available for loan interest and promote many unwary landlords into the higher rate tax bands.
  2. From 6 April 2016, the 10% wear and tear allowance is being abolished and landlords after this date will only be able to claim for the actual cost of replacing qualifying furniture and fittings. For many landlords this will result in an increase in their tax payments from 2016-17.
  3. From 1 April 2016, landlords will pay an additional 3 percentage points on the stamp duty charged when they purchase a buy-to-let property.

By far the most insidious of these changes is the gradual reduction in the tax relief for loan or mortgage interest payments. Although the start of this process is still a year away, landlords would be well advised to seek professional advice to see exactly how they will be affected and what changes they will need to make in order to survive…

THE KEY POINTS FROM BUDGET 2016

Friday, March 18th, 2016

One of the main themes of the Chancellor’s March 2016 Budget was to ensure that the next generation inherits a strong economy, is better educated, and grow up fit and healthy. His proposed “sugar tax” on the soft drinks industry will be used to fund longer school days for those that want to offer their pupils a wider range of activities, including extra sport.

He again stressed his prudence in concentrating on debt repayment and the importance of “mending the roof while the sun shines”, although he acknowledged that there were numerous factors that could impact on his “bullish” growth forecasts and promises of future budget surpluses.

There will be further changes affecting savers and he hinted that there could be yet further changes to pensions, but not for the time being.

PERSONAL ALLOWANCES
As already announced, the basic personal allowance for 2016/17 will be £11,000. The March Budget announced that this will increase to £11,500 for 2017/18. Remember that if your adjusted net income exceeds £100,000 the personal allowance is reduced by £1 for every £2 over £100,000 giving an effective rate of 60% on income between £100,000 and £122,000 for 2016/17. Contact us for advice on planning to avoid this 60% rate.

INCOME TAX BANDS
The 20% basic rate band for 2016/17 will be £32,000 and for 2017/18 it was announced that this will be £33,500. This means that you will pay 40% tax if your taxable income exceeds £43,000 for 2016/17 and the threshold will be £45,000 for 2017/18. The 45% top rate continues to apply to taxable income over £150,000 for 2016/17.

FURTHER CHANGES TO ISAs
The current £15,240 ISA limit is frozen for 2016/17. The Junior ISA limit remains at £4,080 for 2016/17.

The Chancellor announced that the ISA allowance will increase to £20,000 from 6 April 2017 and that from the same date there will be a new “Lifetime ISA” account where investors aged between 18 and 40 who save up to £4,000 a year will have 25% (up to £1,000) added by the government. Those who have been saving in the new “Help to Buy” ISA will be able to transfer their savings to this new account and use the savings to help them buy their first home or use them to provide an additional pension. These may in future replace traditional pension saving schemes.

PENSION ALLOWANCES REDUCED
There was much speculation about further major changes to pensions such as taxing the lump sum and limiting tax relief, but these did not materialise.

From 6 April 2016 the pension fund lifetime allowance will be reduced from £1.25million to £1million. Transitional protection for pension rights already over £1million will be introduced alongside this reduction to ensure the change is not retrospective.

As already announced, those with income in excess of £150,000 will have the normal £40,000 annual allowance reduced by £1 for every £2 over £150,000.

£1,000 SAVINGS INCOME TAX FREE 2016/17
From April 2016, a tax-free allowance of £1,000 (or £500 for higher rate taxpayers) will be introduced for the interest that people earn on savings. If they are a basic rate taxpayer and have a total income up to £43,000 a year, they will be eligible for the £1,000 tax-free savings allowance.

If they are a higher rate taxpayer and earn between £43,000 and £150,000, they will be eligible for a £500 tax-free savings allowance, but those with income in excess of £150,000 a year will be taxed in full on their interest income.
As a result of these changes banks and building societies will pay interest gross from 6 April 2016.

NEW DIVIDEND RULES START 6 APRIL 2016
It was announced in the Summer 2015 Budget that there would be a £5,000 tax free dividend allowance from 6 April 2016 and that once used the rate of tax on dividend income would increase by 7.5%. This means that basic rate taxpayers will pay 7.5% tax on dividend income, higher rate taxpayers 32.5% and additional rate taxpayers 38.1%. Note that from 6 April 2016 dividends will no longer carry with them a 10% notional credit. This is the reason why dividends received by basic rate taxpayers were effectively tax free up to 5 April 2016.

32.5% TAX ON LOANS TO PARTICIPATORS FROM 6 APRIL 2016
Where a “close” company controlled by 5 or fewer shareholders (participators) makes a loan to one of those persons the company is required to pay tax to HM Revenue and Customs. The rate of tax increases from 25% to 32.5% from 6 April 2016 in line with the dividend rate for higher rate taxpayers. This tax is not payable if the loan is cleared within 9 months of the end of the accounting period and will continue to be repaid to the company if the loan is repaid or written off after the 9 month period.

CAPITAL TAX RATES
An unexpected announcement was a reduction in the rate of capital gain tax from 6 April 2016 down from 18% to 10% for basic rate taxpayers and 28% down to 20% for higher rate taxpayers. The 18% and 28% rates remain for disposals of residential property.

There has been no change in the inheritance tax nil rate band which remains at £325,000 until 2020 although an additional nil band will be available from 6 April 2017 where the main residence or assets of an equivalent value are left to direct descendants. This additional relief will be protected where the person downsizes to a less valuable property from 8 July 2015 onwards. Please contact us if you would like to discuss inheritance tax planning.

FURTHER CHANGES TO CGT ENTREPRENEURS’ RELIEF
Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies. This new investors’ relief will apply a 10% rate of CGT to gains accruing on the disposal of ordinary shares held by individuals. These shares must be subscribed for by the claimant and acquired for new consideration on or after 17 March 2016. The shares must have been held for a period of at least three years starting from 6 April 2016 and there will be a lifetime cap of £10 million.

In the 2014 Autumn Statement it was announced that it is no longer possible to claim CGT entrepreneurs’ relief against the gains arising on the sale on or after 3 December 2014 of goodwill by a sole trader or partnership to a limited company in which they have a controlling interest. That restriction was then legislated in Finance Act 2015. It has now been announced that the relief will still be available provided that the transferor does not receive more than 5% of share capital or voting rights in the acquiring company.

LOWER CORPORATION TAX RATES
A single corporation tax rate of 20% has applied since 1 April 2015 regardless of the level of the company’s profits. In the Summer 2015 Budget it was announced that this would reduce to 19% in April 2017. The Chancellor has now announced that this will now be reduced to 17% from 1 April 2020.

£1,000 TAX FREE FOR “MICRO -ENTREPRENEURS”
From April 2017, the government will introduce new allowances for the first £1,000 of trading income and the first £1,000 of property income. Those with income below this level will no longer need to declare or pay income tax on that income. Those with income above the allowance will also benefit by deducting the relevant allowance from their gross income. This appears to be aimed at people starting small businesses on E-Bay and renting on air B&B.

NEW CORPORATE TAX LOSS RULES
There will be fundamental changes to the rules for setting off corporate tax losses starting on 1 April 2017. For losses incurred on or after 1 April 2017, companies will be able to use carried forward losses against profits from other income streams or from other companies within a group. However, large companies with profits in excess of £5m will only be allowed to offset brought forward losses against 50% of the amount of profit in each future period.

INTEREST RELIEF RESTRICTED FOR MULTI- NATIONAL COMPANIES
From 1 April 2017, to restrict profit shifting by multi-nationals, the UK will be introducing a Fixed Ratio Rule limiting corporation tax deductions for net interest expense to 30% of a group’s UK earnings before interest, tax, depreciation and amortisation (EBITDA). This is in line with the rules that exist in several other countries and will address profit-shifting through interest charges. Note that this restriction will not apply where the net UK interest expense is less than £2 million.

SDLT CHANGES
The rules for calculating the Stamp Duty Land Tax (SDLT) charged on purchases of non-residential properties and transactions involving a mixture of residential and non-residential properties changed with effect from Budget Day to bring them more into line with the mechanism for charging SDLT on residential property. On and after 17 March 2016, SDLT will be charged at each rate on the portion of the purchase price which falls within each rate band. The new rates and thresholds for freehold purchases and leases premiums are:

Purchase price                         SDLT rate, cumulative
Up to £150,000                            NIL                 NIL
£150,001 – £250,000                  2%                   £2,000
£250,001 and over                      5%                   (no maximum)

Note also that the additional 3% SDLT charge on additional residences commences on 1 April 2016.

TAX RELIEF ON SMALL DONATIONS TO CHARITY INCREASED TO £8,000
The Gift Aid Small Donations Scheme (GASDS) allows charities to treat small donations such as those in collecting boxes as if Gift Aided.

With effect from 6 April 2016 the maximum annual donation amount which can be claimed through GASDS will be increased from £5,000 to £8,000 allowing charities and Community Amateur Sports Clubs to claim Gift Aid style top-up payments of up to £2,000 a year.

VAT REGISTRATION LIMIT £83,000
The VAT registration limit has been increased by £1,000 to £83,000 from 1 April 2016. The de-registration limit also increased by £1,000 to £81,000.

If you have any questions, please contact us today on 01903 713508.

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