Budget 2016: Business or Property Owner? How will you be affected?

2016 Budget

The UK chancellor of exchequer George Osborne presented his budget to the house of commons on 16th March. Are you a business or property owner?

With so many changes, find out how you will be affected! 

Want to discuss how you will be impacted, please contact us.

 

BUSINESS ANNOUNCEMENTS

Budget 2016 business owners
  • Business Rates:
    • The Business rate is calculated according to the rental value of the property. Reforms were announced to more than double the threshold for small business rate relief from £6,000 to £15,000. These changes will take effect from April 2017.
  • Corporation Tax:
    • Rate of corporation tax will be reduced to 17% by 2020. For start-ups and many UK small firms, which only generate a marginal profit, this is unlikely to have a big impact.
  • Capital Gains Tax:
    • Capital gains are profits from the sale of a capital asset, such as shares of corporate stock, or a business.
    • From April 2016, capital gains tax to be cut from 28% to 20% for higher rate taxpayers, and from 18% to 10% for basic rate taxpayers.
    • Note - gains made on residential property will not be eligible for the newly lowered rates. Instead the Chancellor has maintained the existing rates, equivalent to an eight percentage point surcharge.        
  • Business Premises Renovation Allowance:
    • The business premises renovation allowance will expire on 31 March 2017 for corporation tax (and 5 April 2017 for  income tax).
  • Corporate Interest Expenses Tax Deductibility:
    • There will be a restriction on the tax deductibility of corporate interest expenses.The UK will introduce a Fixed Ratio Rule limiting corporation tax deductions for net interest expenses to 30% of a group’s UK earnings before interest, tax, depreciation and amortisation (EBITDA). 
  • VAT:
    • From 1 April 2016 the VAT registration threshold, above which you are required to be VAT registered will rise from £82,000 to £83,000 and the de-registration threshold will rise from £80,000 to £81,000.
  • Income in Non monetary form:
    • New measures will be introduced to ensure income from trading or property income received in non-monetary form will be brought fully into account for Income Tax or Corporation Tax purposes.
  • Entrepreneurs' tax relief:
    • This has been extended to include long-term investors in unlisted companies. Under the new rules, entrepreneurs will be able to access a 10% rate of capital gains tax on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016. Subject to a lifetime limit of £10m on gains
  • Business loans to participators:
    • Loans to participators provisions which aim to prevent owners of close companies seeking to lower their overall tax rates by remunerating themselves in the form of loans, advances, or other similar arrangements from their companies that remain unpaid.
    • The rate of tax that will apply to loans to participators under these measures will be increased from 25% to 32.5%, which will align them to the higher rate of dividend tax.
    • This will apply to loans, advances, and arrangements made on or after 6 April 2016.    

PERSONAL ANNOUNCEMENTS

  • Personal Allowance:
    • The personal allowance will be increased from £11,000 in 2016/17 to £11,500 in 2017/18. The higher rate threshold will increase from £32,000 in 2016/17 to £33,500 in 2017/18.

SELF-EMPLOYED ANNOUNCEMENTS

  • Class 2 National Insurance: 
    • From April 2018, class 2 national insurance will be abolished and only class 4 NIC's will be payable.
  • Termination payments:
    • Employers will pay national insurance on pay-offs (such as redundancy payments) on amounts above £30,000 from April 2018.
    • For people who lose their job, payments up to £30,000 will remain tax-free and they will not need to pay national insurance on any of the payment.

SAVINGS AND INVESTMENTS ANNOUNCEMENTS

budget 2016 dividends
  • Dividends:
    • A new dividends allowance of £5,000 a year is being introduced. Tax on dividend income above the allowance will be charged at: • 7.5% for basic rate taxpayers • 32.5% for higher rate taxpayers • 38.1% for additional rate taxpayers. 
  • Pensions Lifetime Allowance: 
    • This will be reduced from £1,250,000 to £1,000,000 with effect from 6 April 2016. Those aged under 40 can save upto £4,000 a year and receive a 25% government bonus from April 2017.
  • Annual ISA Limit:
    • This will Increase from £15,240 to £20,000 from April 2017.

PROPERTY OWNERS ANNOUNCEMENTS

Budget 2016 stamp duty land tax hike
  •  SDLT Hike: 
    • Large investors will not be exempt from the 3% Stamp Duty surcharge that comes into effect in April 2016. It was originally thought that those with 15 or more properties would be exempt. Many in the industry fear this may have a negative impact on the emerging build to rent sector which is so crucial in providing housing in London.
    • Osborne announced that the higher Stamp Duty rates are forecast to generate an extra £630 million for the treasury in 2016/17 rising to £855 million by 2020/1.
    • Property owners will have 36 months to claim back the 3% stamp duty levy.
    • Those buying a second property will have a window of 36 months to sell their primary residence and claim a refund on the extra 3% Stamp Duty levy. That means you can own two properties for three years without having to pay the extra charge.
  • Property and Trading Income Allowances: 
    • The government will introduce a new £1,000 allowance for property income and a new £1,000 allowance for trading income from April 2017. Interesting tax changes for property owners include a tax-free allowance for those conducting business online. So whether you’re selling on eBay or renting out a room via a site like AirBnB, your first £1,000 will be tax-free!
  • Scrapping of Wear & Tear Allowance: This is being abolished from April 2016. Landlords will be able to deduct the actual costs of replacing furnishings. 

OTHER ANNOUNCEMENTS

budget 2016 tax avoidance
  •  Disguised remuneration avoidance schemes:
    • Some of the measures include: inserting an additional targeted anti-avoidance rule, and the withdrawal of the relief on investment returns.
    • A raft of measures are to be introduced targeted at employers, companies and individuals using tax avoidance schemes. The measures will also apply to employers, companies and individuals that used an employee benefit trust (EBT) arrangement prior to 2011 and have yet to settle with HMRC.
    • Also see our article on Budget 2016: HMRC AND IT CONTRACTOR LOAN PAY SCHEMES

If you would like to discuss these proposals, feel free to contact us!