Broomfield & Alexander analysis of 2016 budget
The Chancellor badged this budget “a budget for the next generation”. In that respect he may be right because some of the changes he announced will take effect either in years to come or specifically for those under 40.
Several weeks ago, a large debate ensued on pensions with further changes expected on the amount of tax relief available when people save for retirement and on the tax-free lump sum which can be taken on retirement. There had been sweeping changes to pensions in recent years and most did not wish to consider yet more. Fortunately, the Chancellor decided to leave the current rules alone in favour of a new lifetime ISA for those under 40 in April 2017. The concept is that savers can put up to £4,000 aside each year until the age of 50 to help in retirement and during this time the Government will contribute £1 for every £4 saved which is effectively a 20% tax incentive.
There were a few surprises.
The rate of tax paid by companies will reduce to 17% from April 2020 representing a further 1% cut; the theory being that more money left within the company will lead to investment and growth. The rate of 17% will be one of the lowest in the world of developed countries. Clearly only those who chose to operate their business via a limited company will benefit. Anticipating a rush to use companies, a word of warning, the Government is proposing higher taxes on loans from companies and intends to tackle further the perceived avoidance of tax through the use of personal service companies. In addition to this we already know that when you extract profit from a company, the rate of dividend tax will be higher from April 2016.
An added bonus was a reduction in the top rate of capital gains tax paid by individuals from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers. Already business owners can benefit from a 10% rate of capital gains tax on the sale of business assets and shares and this is going to be extended to non-business assets other than certain assets such as residential property. This represents a bit of a shake-up in capital gains tax regime and many in Wales will need to consider carefully what to invest in and when to dispose of assets.
In the property sector, we have already seen a change in the way that stamp duty is calculated for residential property. To level the playing field, similar changes will be introduced for the purchase of commercial property, which for many in Wales, given the relatively lower property values, will lead to lower stamp duty bills overall. The proposed higher stamp duty rates for residential property lets will go ahead as planned and the Chancellor has confirmed that buyers of large property portfolios will also face the change despite a challenge from the sector.
Finally, to help smaller businesses, an increase in business rates relief and a new tax-free exemption for “Micro businesses”, targeted to those who work from home or use the internet for business, is welcome. For those businesses in Wales who travel over the bridge, the cost of the bridge tolls will half from 2018. This coupled with low fuel costs aided by today’s freeze on fuel duty could help those businesses save money and grow. A City Deal appears to be on the cards for Swansea matching that agreed for Cardiff. It remains to be seen the tangible benefit this will bring to businesses in Wales.
Download a copy of the Broomfield & Alexander Budget Report here with a detailed analysis of the Budget announcements.