Business Summary & Implications
Corporation Tax Rates
The corporation tax rate will reduce from 20% to 19% from 2017. A further reduction to 18% will follow in 2020.
Annual investment allowance
The annual investment allowance for all qualifying investment in plant and machinery made on or after 1 January 2016 will be £200,000. The allowance is currently £500,000.
From April 2016, there will be an increase in the annual employment allowance from £2,000 to £3,000. Companies where the director is the sole employee will no longer be eligible to claim the employment allowance from April 2016.
Goodwill restriction of corporation tax relief
The corporation tax relief a company may obtain for the cost of ‘goodwill’, such as the amount paid for the reputation or customer relationships of the business purchased, will be restricted for all acquisitions and disposals on or after 8 July 2015. This measure removes the tax relief that is available when structuring a business acquisition as a business and asset purchase so that goodwill can be recognised and amortized over time. This advantage is not generally available to companies which purchase the shares of the target company. Removing this relief reduces this distortion and levels the playing field for merger and acquisition transactions.
Employee benefits and expenses
A statutory exemption is to be introduced from April 2016, which is intended to simplify the tax system by introducing a statutory exemption for trivial benefits in kind costing less than £50.
Self-employed national insurance contributions
Consultation will commence in autumn 2015 on abolishing Class 2 national insurance contributions (NICs) and reforming Class 4 NICs for the self-employed.
From 2016, a new compulsory living wage of £7.20 for over-25s will be introduced, and will rise to more than £9 by 2020.
The dividend tax credit will be removed and replaced with a tax-free dividend allowance of £5,000 a year. The dividend tax rates will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for the additional rate.
Personal Summary & Implications
Personal allowance increase
The income tax personal allowance will increase from £10,600 in 2015/16 to £11,000 in 2016/17. It will further increase to £11,200 from 2017/18.
Higher rate threshold increase
The higher rate threshold will increase from £42,385 in 2015/16 to £43,000 in 2016/17. It will increase to £43,600 in 2017/18. There will be a corresponding increase in the national insurance contributions upper earnings limit to ensure it remains aligned with the higher rate threshold.
Higher rate threshold increase
|Year||Higher rate threshold|
Restricting finance cost relief for landlords
The government will restrict the relief on finance costs, including mortgage interest payments, available to individual landlords of residential property to the basic rate of tax. The restriction will be phased in over a 4 year period, starting from April 2017.
Increase in rent-a-room relief
The level of rent-a-room relief will increase from £4,250 to £7,500 from April 2016 to help the growing numbers of individuals renting out their spare rooms.
Wear and tear allowance changes
The government will replace the existing wear and tear allowance with a new relief that will allow all residential landlords to deduct the actual cost of replacing furnishings from April 2016. Capital allowances will continue to apply to landlords of furnished holiday lets. A technical consultation will be published on the new relief before the summer.
Abolishing non-domicile status for long-term residents
Legislation will be introduced from April 2017 to ensure that anybody resident in the UK for more than
15 of the past 20 years will be deemed to be domiciled in the UK for tax purposes.
Non-domicile status for UK born individuals
From April 2017, any individual who is born in the UK to parents who are domiciled here will not be eligible to claim non-domicile status while they are resident in the UK.
Working parents of 3 to 4 year-olds will receive up 30 hours of free childcare a week from September 2017
£12 billion of welfare cuts were announced through reforms. These cuts should be achieved by 2019/20 and legislation will be put in place later this year. Tax credits and universal credits are to be limited to two children.
This will affect Children born after April 2017. (There is a caveat where there are multiple births (e.g. twins). The overall benefit cap of £26,000 in London is to be reduced to £23,000 and £20,000 for the rest of the country.
Social Housing tenants with earnings of more than £40,000 in London and £30,000
outside London will be required to pay rent at market rates. The income rise disregard has been reduced to £2,500 from £5,000.
The income threshold for tax credits are to reduce from £6,420 to £3,850, with a similar reduction to Universal Credit work allowances. The latter will now not be awarded to non-disabled claimants without children.
Working age benefits are to be frozen for four years. This affects tax credits and local housing allowance, but excludes maternity pay and disability benefits.
Social Housing sector rents are be reduced by 1% a year for the next four years.
Disability benefits are not taxed or means-tested. Funding for domestic abuse victims and women’s refuges are to be increased. An automatic right to housing benefit is to be abolished for 18 to 21 year olds with exemptions for vulnerable people.
Personal Insurance Bonds
For investors and retirees looking to avoid the extra dividend tax on their share portfolios maybe they could use personal insurance bond wrappers instead? Of course that way they can still access 5% capital per year tax-free.