Budget Statement 16 March 2016

 Personal Tax and miscellaneous matters

 Personal Tax allowance

 From 2016-17, there will be one Income Tax personal allowance regardless of an individual’s date of birth.

  • For 2016-17 the allowance is set at £11,000, and
  • For 2017-18 at £11,500

 Income Tax rate bands

 The Chancellor confirmed his intention to remove taxpayers from the higher rate of income tax by increasing the levels at which taxpayers start to pay higher or additional rate taxes. The levels for the next two years are:

  • For 2016-17 – £43,000
  • For 2017-18 – £45,000

 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%).

 Capital Gains Tax (CGT) reduction

 From April 2016, CGT on the disposal of chargeable assets, apart from residential property, is reduced to:

  • 10% from 18% on disposals that form part of the basic rate band.
  • 20% from 28% on disposals that form part of the higher rate band.

 The existing 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.

 Entrepreneurs’ relief extended to include investors

 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 in an unlisted trading company held by individuals, that were newly issued to the claimant and acquired for new consideration on or after 17 March 2016, and have been held for a period of at least three years starting from 6 April 2016. A person’s qualifying gains for this investors’ relief will be subject to a lifetime cap of £10 million.

 

Entrepreneurs’ relief on disposal of goodwill relaxed

Legislation will be introduced in Finance Bill 2016 to allow ER to be claimed in respect of gains on goodwill where the claimant holds less than 5% of the shares, and less than 5% of the voting power, in the acquiring company. This ‘holding condition’ will replace a previous requirement that the claimant must not be a ‘related party’ in relation to the company.

Relief will also be due where the claimant holds 5% or more of the shares or voting power if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner.

Miscellaneous pension changes

A number of minor changes are being included to the pensions tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015. The changes will:

  • remove the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed
  • replace the 45% tax charge on serious ill-health lump sums paid to individuals who have reached age 75 with tax at the individual’s marginal rate
  • enable dependents with drawdown or flexi-access drawdown pension who would currently have to use all of this fund before age 23 or pay tax charges of up to 70% on any lump sum payment, to continue to access their funds as they wish after their 23rd birthday
  • remove the rule on paying a charity lump sum death benefit out of drawdown pension funds and flexi-access drawdown funds where the member dies under the age of 75 because the equivalent tax-free payment may be made as another type of lump sum death benefit
  • enable money purchase pensions in payment to be paid as a trivial commutation lump sum
  • enable the full amount of dependent’s benefits to be paid as authorised payments where there are insufficient funds in a cash balance arrangement when the member dies

These changes will apply from the day after the Finance Bill 2016 receives Royal Assent later this year.

 

 Excise duties

 The duty on beers, spirits and most ciders will be frozen this year. The duty rates on wine will increase by RPI inflation from 21 March 2016.

 Tobacco duty rates

Duty rates on all tobacco products will increase by 2% above the retail price index with a further 3% increase on hand-rolling tobacco, which will rise by 5% above RPI.

The changes to tobacco duty took effect from 6pm, 16 March 2016. 

 Fuel duty

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