While the headlines in the nation’s newspapers were all about the new sugary drinks tax, there were plenty of announcements in the Chancellor’s 2016 Budget that can impact you, your family and your business. Alan McCappin, Practice Manager at Bradleys, takes a look at the headlines:
Lifetime ISA (LISA) – only fools rush in
Young savers welcomed Osbourne’s plan to introduce a lifetime ISA (LISA) from April 2017. However, before you do anything please understand the following?
• LISA is only open to only those aged between 18-40
• You can save only up to £4,000 in a LISA each year
• Savings will benefit from 25% boost from the government up to the age of 50, which means those who deposit £4000 in a year will benefit from am a maximum £1000
However everything is not as rosy it seems. There are conditions on how this money could be spent. Funds put in a LISA can only be used to buy a first home - up to £450,000 – any time after opening the account, or can be withdrawn from age 60 to fund retirement. And if the savers dip into the funds before they turn 60, except than to buy a home, the bonus will have to be returned and a 5% surcharge will be levied. The only exception is if you are terminally ill. Married Couples will be entitled to a LISA each.
It is also expected that the Help to Buy ISA will be scrapped by 2019, and replaced by LISA.
Some questions still remain unanswered.
- What is classed as a new home? For Mortgage purposes, a Joint couple are considered as First Time Buyers, even if they owned properties previously individually. Would the same apply?
- If not? Would the LISA funds be only available to the individual who hasn’t been a home owner previously.
- Will there be exemptions for those who once owned property but had to sell for financial complications?
Sugar tax – will this really work
Basically this is the new novelty tax that was campaigned by celebrity chef, Jamie Oliver to encourage manufacturers provide a healthier drink by reducing the overall sugar content.
In terms of its efficiency, this largely depends on how it is applied. There will be 2 tiers to this tax: one will apply to drinks with sugar content above 5g per 100ml and another to drinks with more than 8g per 100ml which will be levied against manufacturers or on imports. All drink below 5g of sugar per 100ml will be exempt, as will juice-based and milk-based drinks.
However there is information as to whether there will be a flat amount applied for each tier or whether it will be a percentage based of the sales price. If it is the sales price, then the manufacturers could set up intermediary resellers to reduce their sales price that the sugar tax applies to.
If it is a fixed amount, it is more likely to work. George Osborne hasn’t released the details as yet of how it will work but I assume this is to avoid drinks manufacturers tax planning rather than reformulating the product to reduce its sugar content. Understandably the drinks federation was quite upset by the new tax imposed and some have questioned why sugary drinks have been targeted while foods have not despite making a conscious effort to reduce their sugar content over the years. The question is whether the sugar content will be reduced or whether the end consumer will have to decide whether they want to pay the additional charge due to increased retail prices. Furthermore if the drinks are reformulated, will the ingredients chosen to substitute the sugar be equally as harmful? Some drink’s suppliers have commented the new tax could also have another negative side effect of reducing their labour force.
There is some good news for investors but no so good news for landlords. The higher rate of capital gains tax (CGT) is being cut from 28% to 20%, and 18% to 10% for basic rate tax payers. Osborne said, "The rates will come into effect in three weeks’ time. The old rates will be kept in place for gains on residential property and carried interest."
But this change won’t help landlords, because CGT on residential property and carried interest will be subjected to an 8% surcharge on any gains not relieved by PPR.
The threshold for small business rate relief has been permanently raised from £6,000 to a maximum of £15,000 and for the higher rate from £18,000 to £51,000. These reforms mean that 600,000 small businesses will not pay any rates from April 2017.
The earnings threshold at which taxpayers start paying tax, known as a personal allowance, has risen. We already knew that it was rising to £11,000 for basic rate taxpayers in April. It will further rise to £11,500 in April 2017. We have calculated that the change in 2017, when compared with a personal allowance of 10,600, will reduce tax by £180 per year, or £3.46 per week for basic rate tax payers.
Some more good news. The higher-rate threshold that is expected to rise to £43,000 in April 2016, will go up to £45,000 in April 2017. The intention is to move this to £50,000 by 2020.
Corporation tax will be cut even further than previously announced. By April 2020, the rate of corporation tax for all companies would fall to 17% from the 28% at which it stood at when the Conservatives came to power.
“Britain is blazing a trail,” said Osborne. “Let the rest of the world follow.”
There is some good news in this Budget for small businesses, and it’s also interesting to see how the changes to tax for contractors is coming into play. Despite the Chancellor glossing over a host of changes during his speech, the next few years look interesting.
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