Today’s (16 March) Budget included a wide-range of reforms to tax.
| Tax | Rates in 2015 Summer Budget | Changes in 2016 Budget |
| Income tax | Personal allowance to increase from £10,800 in 2015/6 to £11,000 in 2016/7. Increases in the main rates of income tax were ruled out but the higher rate threshold from will rise from £42,385 in 2015/16 to £43,000 in 2016/17 and to £43,600 in 2017/18. | The personal allowance will rise from £11,000 in 2016/17 to £11,500 in 2017/18. Meanwhile the higher rate threshold will rise by £2,000 to £45,000 in 2017/18. |
| Pension allowance | Lifetime allowance remained at £1.25m and annual allowance at £40,000. From April 2016 the government said it would introduce a taper to the annual allowance for those with adjusted annual incomes, including their own and employer’s pension contributions, over £150,000. A consultation on whether there is a case for reforming pensions tax relief was launched. | No changes but Lifetime Isa introduced. |
| Capital gains tax | Rates unchanged but the government said it would stop investment fund managers from using tax loopholes to avoid paying the correct amount of capital gains tax on the profits of the fund payable to them. | From 6 April 2016, the higher rate of Capital Gains Tax will be reduced from 28 per cent to 20 per cent, and the basic rate will be reduced from 18 per cent to 10 per cent. Entrepreneurs’ relief will be extended to long term investors in unlisted companies. This will provide a 10 per cent rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016. |
| Bank levy | A phased reduction of the bank levy rate was announced, from the existing rate of 0.21 per cent to 0.18 per cent from January 2016, 0.17 per cent from January 2017, 0.16 per cent from January 2018, 0.15 per cent from January 2019, 0.14 per cent from January 2020 and 0.10 per cent from January 2021. A new tax on banking sector profit was introduced from 1 January 2016, set at a permanent rate of 8 per cent. | No changes |
| Inheritance tax | A new transferable nil-rate band will be introduced from April 2017. This will apply when a main residence is passed on death to direct descendants, such as a child or grandchild. The allowance will be up to £100,000 in 2017/18, up to £125,000 in 2018/19, up to £150,000 in 2019/20, and up to £175,000 in 2020/21. There will be a tapered withdrawal of the main residence nil-rate band for estates with a net value of more than £2m. The existing nil-rate band will also remain at £325,000 from 2018/19 until the end of 2020/21. | The government will legislate to charge inheritance tax on all UK residential property indirectly held through an offshore structure from 6 April 2017. |
| Corporation tax | The government will reduce the corporation tax rate from 20 per cent to 19 per cent in 2017 and 18 per cent in 2020. | The rate of corporation tax will be cut to 17 per cent by 2020. |
| Tax on savings interest | From April 2016 the government will remove the Dividend Tax Credit and replace it with a new tax-free Dividend Allowance of £5,000 a year for all taxpayers. Combined with the personal savings allowance, the govnerment says that from April 2016 individuals will be able to receive up to £17,000 of income a year tax-free, and separately invest up to £15,240 per annum through an ISA tax-free. The dividend tax rates will be set at 7.5 per cent for basic rate taxpayers, 32.5 per cent for higher rate taxpayers and 38.1 per cent for additional rate taxpayers. | The Isa allowance will rise from £15,240 to £20,000 in 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 per cent bonus from the government on every pound they put in. The government will change the tax rules so interest from Open-Ended Investment Companies, authorised unit trusts, investment trust companies and peer to peer loans may be paid without deduction of income tax from April 2017. The government will legislate to allow the Isa savings of a deceased person to continue to benefit from tax advantages during the administration of their estate. |
| National insurance | The government increased the National Insurance contributions Employment Allowance from £2,000 to £3,000 a year. From April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance. | 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. 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 that are already subject to income tax. |
