George Osborne presented his Budget on Wednesday 16 March 2016.
In his speech the Chancellor reported on ‘an economy set to grow faster than any other major advanced economy in the world’. Towards the end of 2015 the government issued many proposed clauses of Finance Bill 2016 together with updates on consultations.
The Budget proposed further measures and we discuss some of the key changes below.
National Minimum Wage Rises
From 1 April 2016 following the introduction of the National Living Wage all workers aged 25 and over are legally entitled to at least £7.20 per hour. Employers should ensure that all eligible employees benefit from this new rate.
The National Minimum Wage (NMW) rates will increase from 1 October 2016 as follows:
Rate from 1 October 2016
21-24 year olds
18-20 year olds
16-17 year olds
*This apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the NMW for their age.
Personal allowances and tax bands
From 2016/17 there will be one personal allowance of £11,000 for everyone, regardless of age.
There will be a reduction in the personal allowance for those who have an ‘adjusted net income’ over £100,000, who will lose £1 for £2 of income above £100,000. So for 2016/17 there will be no personal allowance where a persons adjusted net income exceeds £122,000.
Tax bands and rates
The basic rate tax band is currently 20%. For 2016/17, the band of income taxable at this rate is £32,000 and the threshold at which the 40% rate applies has risen to £43,000.
The additional rate of tax of 45% remains payable on taxable income above £150,000.
Tax bands and personal allowance for 2017/18
The Chancellor announced in the Budget that the personal allowance will be increased to £11,500 and the basic rate limit increased to £33,500 for 2017/18. The higher rate threshold will rise to £45,000 for those entitled to a full personal allowance.
Capital gains tax rates
The rates of capital gains tax (CGT) where 18% to the extent that total taxable income does not exceed the basic rate band and 28% thereafter.
In the Budget, the government announced that these rates would be reduced, taking effect for disposals made on or after 6 April 2016. The higher rate of CGT is now 10% and the higher rate is now 20%. The Trust rate has also reduced from 28% to 20%.
The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private residence relief. In addition, the 28% rate still applies for ATED related chargeable gains accruing to any person (principally companies).
The rate disposals qualifying for Entrepreneurs’ Relief (ER) remains at 10% with a lifetime limit of £10 million for each individual.
A new Lifetime ISA will be available from April 2017 for adults under the age of 40. Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.
Further details of the new account, which will be available from 2017, are as follows:
Any savings an individual puts in before their 50th birthday will receive an added 25% bonus from the government.
There is no maximum monthly contribution and up to £4,000 a year can be saved.
The savings and bonus can be used towards a deposit on a first home worth up to £450,000 across the country.
Accounts are limited to one per person, not one per home, so two first time buyers can both receive the bonus when buying together.
Where the funds are withdrawn any time before the account holder is 60 they will lose the government bonus, and any interest or growth on it, and will also have to pay a 5% charge.