A brief synopsis of the key financial planning points within Chancellor George Osborne’s Budget 2016 speech:-
As headlined recently, the Chancellor decided to do absolutely nothing about changing pension tax relief. The Lifetime Allowance is reducing from £1.25m to £1m on the 6th April with protection available to some.
Lifetime Individual Savings Account (LISA)
A new savings product will be launched from April 2017. The Government aims to encourage long term saving with the inclusion of a ‘buy four get one free’ bonus (basically the addition of basic rate tax relief).
The plan will only be available to those under 40 and funds cannot be accessed until age 60. However, to help first time buyers, funds may be withdrawn tax free to cover the cost of a deposit on their first home and in many ways therefore could be seen as an extended version of the current Help to Buy ISA.
Contributions are limited to £4,000 per annum, which will be worth £5,000 when tax relief is added, and will count towards the total ISA savings total of £20,000 which will apply from April 2017.
Capital Gains Tax (CGT)
CGT is reducing to 10% (from 18%) for basic rate tax payers and to 20% (from 28%) for higher rate taxpayers. However, landlords and second property owners will continue to pay the current 18% and 28% on gains when they sell the property.
Corporation Tax (CT)
CT will be reducing to 17% from the current rate of 20% from 2020.
Personal Allowance (PA)
From April 2017, the PA will rise from £11,000 to £11,500 and the higher rate threshold will increase from £43,000 to £45,000.
A Personal Savings Allowance is being introduced from April 2016 which will mean that the first £1k of deposit interest will be tax free for basic rate tax payers and £500 for higher rate tax payers. Interest will be paid gross so that non-tax payers will no longer have to reclaim tax deducted at source.
The new Dividend Allowance will mean that from April 2016 the first £5k of dividend income for 16/17 will not be subject to tax with tax credits also being scrapped. Dividends above £5k will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate). Dividends received by pensions and ISAs will be unaffected.