Understanding legislationUnderstanding legislation

Budget Report March 2016

The Chancellor looked to deliver a stable budget, aiming to avoid controversy ahead of the EU Referendum in June. Whilst there were no ground-breaking announcements, the detail still contains proposals of interest to investors.

 The Macro Picture

 As widely expected, the macro economic outlook is less positive than at the Autumn Statement. The new picture is:

  • GDP growth forecast for 2016 cut to 2% (from 2.4%) by the Office of Budget Responsibility (OBR). Growth is predicted to be 2.2% in 2017 and 2.1% in 2018.
  • Global predicted growth for 2016 cut to 3.4% (from 3.6%) by the International Monetary Fund (IMF)
  • Deficit is expected to be 3.8% of GDP in 2015-16, falling to 2.9% in 2016-17, 1.9% in 2017-18 and 1.0% in 2018-19 before achieving a surplus of 0.5% in 2019-20 and 2020-21.
  • Borrowing requirement is therefore predicted to be higher than forecast at the Autumn Statement at £72.2bn for 2015-16, £55bn on 2016-17 and moving to a £10.5bn surplus in 2019/20.

 New Measures

 Many will be pleased that the Chancellor ultimately decided not to interfere with the pensions’ regime, as intimated just before the budget. Here are some of the measures he did set out:

  • Capital Gains Tax rate reduced from 28% to 20% for higher or additional rate tax payers (and from 18% to 10% for basic rate taxpayers). This will come into effect from April 2016. However, residential property will continue to be charged at the old rates, amounting to a surcharge of 8% on residential property gains.
  • Income Tax – The personal allowance will rise to £11,000 in 2016-17 and £11,500 in 2017-18. The higher rate threshold will rise to £45,000 starting in the tax year 2017-18.
  • ISA – In April 2017 the ISA allowance will rise to £20,000.
  • Lifetime ISA – Younger investors will benefit from a new Lifetime ISA, available from 6 April 2017 to anyone under 40. These will have an allowance of £4,000 per year and savers will receive a 25% bonus from the government if the savings are used to buy a house as a first-time buyer or provide a pension. Investors will be able to withdraw money for any purpose subject to a 5% penalty.
  • Class 2 National Insurance Contributions will be abolished, easing the administrative burden for the self-employed.
  • Sugar tax will be introduced on sugary drinks containing more than 5g of sugar per 100ml. The industry will have two years to adjust their drinks before the tax is introduced.
  • Petroleum Revenue Tax zero-rated and the Supplementary Charge being reduced from 20% to 10%.
  • Stamp duty on commercial property will be moved to a slice rather than a slab system, mirroring the recent change to stamp duty on residential property. A higher rate of 2% was also announced for lease agreements with a net present value of the rent greater than £5m.
  • Insurance Premium Tax increased from 9.5% to 10% from 1 October 2016.
  • Duties on fuel, beer, cider and whisky were frozen for 2016-17.
  • Corporation tax rate remains at 20% but will fall to 17% in 2020.
  • Entrepreneur’s relief – 10% CGT rate for qualifying disposals in unquoted companies is extended. No longer is the investor required to be an employee or officer or hold at least 5% of the share capital but this change only applies to investment after 16 March 2016 and held for three years.
  • Loss relief and debt interest relief rules changed.
  • Rates relief for small businesses provided.

 Already announced:

  • Pension Lifetime Allowance cut from £1.25m to £1m from 6 April 2016.
  • Pension Annual Allowance tapers down from £40,000 to £10,000 for earnings over £210,000.
  • Landlord’s ‘wear and tear’ allowance of 10% of rent is abolished for 2016/17.
  • Rent a room relief increases from 6 April 2016 from £4,250 to £7,500.
  • Inheritance tax – Nil rate band remains at £325,000. ‘Residential enhancement’ of £100,000 will be introduced from 6 April 2017 when a home is left, broadly, to a direct descendent.