Budget 2016

The Chancellor, George Osborne, unveiled his eighth Budget on the 16^th March.  The latest economic forecasts show the outlook for the UK economy deteriorating slightly.  The Office for Budget Responsibility (OBR) estimates that the UK economy will grow by 2.0% in 2016 (down from the 2.4% forecast in the Autumn Statement).  For the 2017 year the latest forecast is 2.2% (previously 2.5%) and then 2.1% in 2018 (from 2.4%).  The change is mainly blamed on reduced global economic growth and slow productivity improvements in the UK.  All the forecasts are based on the assumption that the referendum on Brexit will see the UK decide to stay in the EU.  The OBR suggests the uncertainty from a vote to leave would have ‘a profound economic shock’. 

On specific points;

• The biggest surprise in the speech was a change in Capital Gains Tax (CGT).  The higher rate of CGT is to fall from 28% to 20% and the basic rate from 18% to 10% – both from the 6^th April 2016.  Entrepreneurs’ Relief providing a 10% tax rate on qualifying gains up to £10m will remain.  The new lower rates of CGT will not apply to second homes or buy-to-let investments.
• It had already been announced that the Personal Allowance for Income Tax would rise to £11,000 from £10,600 for 2016-17.  The Higher Rate threshold will increase to £32,000.  For the 2017-18 year the Personal Allowance will rise to £11,500 and the Higher Rate threshold to £33,500.  The Government has committed to raise the personal allowance to £12,500, and the higher rate threshold to £37,500 by the end of this Parliament.
• Class 2 National Insurance contributions will be abolished from April 2018.
• A new ‘Airbnb allowance’ for individuals will be introduced from April 2017.  This will allow those with property or trading income below £1,000 p.a. to avoid paying tax. 
• The ISA limit is to increase from the current £15,240 p.a. to £20,000 from April 2017.  There will be a new ‘Lifetime ISA’ (LISA) for those under 40 where the Government will top-up contributions.
• The change in the taxation of Dividends, announced in the July Budget, will come in to effect as from the 6^th April.  This will see the 10% dividend tax credit abolished and a new rate of 0% applied to the first £5,000 of dividend income.  Higher rates will apply above the £5,000 limit, resulting in potentially more tax being paid by those trying to take profits out of Limited Companies.
• The rate of Corporation Tax is to continue at 20% for the year starting 1^st April 2016.  It will then fall to 19% for 2017, 2018 and 2019, before dropping to 17% for the financial year commencing on 1^st April 2020.
• Small Business Rate relief will increase to 100% from 1^st April 2017 for properties with a rateable value of less than £12,000.  A taper will apply between £12,000 and £15,000.  The threshold for the standard rate multiplier will rise to £51,000 from April 2017.
• Stamp Duty Land Tax (SDLT) will be reformed for non-residential properties from the 16^th March 2016.  Like the previous reform to the residential system in December 2014, the ‘slab’ approach is to be replaced with a ‘slice’ tax.  This means properties up to £150,000 will face 0% SDLT, then 2% from £150K to £250K, and 5% above £250K.  This could potential mean larger tax bills on sales of large farms.  The higher rate of SDLT previously announced for buy-to-let properties comes into effect at the end of this month.
• The VAT registration threshold will rise to £83,000 from the 1^st April 2016 and the deregistration threshold will be £81,000. 
• There will be an additional £700m spent on flood defences.  This will be paid for by an increase in the Insurance Premium Tax of 0.5% to 10%.
• A new Sugar Tax on producers of soft drinks with added sugar will be introduced from April 2018.  The revenue raised will be used to fund school sports.  However, duty on beer and whisky is frozen (rates on other alcohol will rise).  Fuel Duty is frozen for the 6^th year in a row.
• An extra £300m will be found for infrastructure spending.   This includes moving forward with the ‘HS3’ rail improvements inthe north of England and Crossrail 2 in London. 
• There will be a further round of reform of the compulsory purchase system.  This is linked to the large infrastructure projects the Government wishes to undertake, but is also part of a drive to increase the rate of house building.  The Government wishes to make it easier to create new Garden Towns and Villages.
• Devolution deals have been agreed for the West of England, East Anglia and Greater Lincolnshire.  These regions will get an elected Mayor and new powers over transport, training and planning.