A series of measures aimed at encouraging savings were announced by the Chancellor of the Exchequer, George Osborne MP, in the 2016 Budget speech.
The headline ISA limit will rise from the current level of £15,240 to £20,000 in the 2017/18 tax year.
A new lifetime ISA was also announced, which will allow investment in both cash and stocks & shares, and which will allow planholders the option of using the funds to purchase a home or to save for retirement. Once these new ISAs become available in April 2017, they will be available to those aged between 18 and 39 when the plan is taken out. Contributions of up to £4,000 per tax year can be made, and the Government will top up these contributions by 25%. Contributions can be made up until age 50. If the funds are withdrawn before age 60, and not used to buy a home, then the planholder will forfeit the Government bonus and need to pay an exit penalty.
No changes were made to the system of pension tax relief. Some commentators suggested that the lifetime ISA could discourage employees from joining their workplace pension schemes.
Firms could find that some of their clients have more disposable income. The income tax personal allowance will rise to £11,500 in 2017/18 (it will be £11,000 in 2016/17), and the higher rate tax threshold will rise to £45,000 in 2017/18 from the current level of £42,385.
The self-employed will no longer need to pay class 2 National Insurance contributions from 2018.
Firms’ clients who receive additional income can benefit from two new allowances of £1,000 each. The first covers rental activities – renting out rooms, driveways, storage space etc. at home; and the other covers ‘occasional jobs’, which includes not only casual labour such as babysitting, but also online trading activities. Individuals will no longer have to declare the first £1,000 of income from each of these two areas.
Small business clients will be cheered by news that the threshold for small business rate relief is to rise from the current £6,000 to £15,000 from April 2017. Hence companies will not need to pay any business rates if their property has a rateable value of £15,000 or less. Higher rate relief will increase from the current £18,000 to £51,000.
Larger corporate clients may welcome the news that corporation tax is to fall to 17% by 2020, but may be less keen on the restrictions announced on using debt interest payments and carried forward losses in order to reduce the corporation tax bill.
Insurance Premium Tax, paid by insurers on motor and household insurance, will rise by 0.5% to 10%, having already been raised by 3.5% in the Budget 12 months earlier. Firms inevitably pass on these rises to customers.
Capital Gains Tax will reduce to 10% for basic rate taxpayers and 20% for higher rate taxpayers, effective for the 2016/17 tax year, except where a second home or buy-to-let property is sold, in which case the rates remain at 18% and 28%.
Advisers may also be cheered by the news that the Money Advice Service (MAS) is to be scrapped. The Pensions Advisory Service and Pension Wise will be combined into a new pensions guidance body, while the MAS will be replaced by what is described as a ‘slimmed down money guidance body’. The wording of the announcement may suggest firms’ levies to fund the new organisations will be lower, although exact details are not yet available.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.