On 16th March 2016, George Osborne announced his Budget to Parliament. Among the raft of measures introduced are a number of significant developments relevant to taxation and broader private client issues. In this article we have highlighted five of the most noteworthy changes.
- Reduced rates of Capital Gains Tax (CGT)
For disposals on or after 6 April 2016, the higher rate of CGT will be reduced from 28% to 20% and the basic rate of CGT will be reduced from 18% to 10%. However, these changes will not apply to gains on carried interest or to gains on residential property outside of the principal private residence exception, which will remain subject to the previous 28%/18% CGT rates.
While the scope of CGT is comparatively small, affecting a relatively minor proportion of taxpayers each year, those who do make chargeable gains will see their tax liability significantly reduced.
- Entrepreneur’s Relief extended
Entrepreneur’s relief has now been extended to gains realised on unlisted shares in a trading company which are issued on or after 17 March 2016, the only criterion being that the shareholding has been held for at least three years from 6 April 2016. This creation of an “investors” relief is an extension of the previous regime under which the individual involved was required to be an employee or officer of the company in which they held the shares.
The government has also extended the application of entrepreneur’s relief in other areas by:
- introducing entrepreneur’s relief on the disposal of privately held business assets to a family member;
- introducing entrepreneur’s relief on goodwill when a business is transferred to a company;
- extending the entrepreneur’s relief available for shareholdings in joint ventures and in companies that are members of a trading partnership.
- Income tax changes
The Chancellor announced that from April 2017 the personal allowance will rise from £11,000 to £11,500, an above expected increase. In addition, the basic income tax rate limit will increase from £32,000 to £33,500 and the higher rate threshold will rise accordingly from £43,000 to £45,000.
- Stamp Duty Land Tax (SDLT) increases for additional properties
With effect from 1 April 2016, higher rates of SDLT will be charged on acquisitions of additional residential properties (such as second homes and buy-to-let properties). The higher rates are 3% above the previous rates.
There will be no exemption from the higher rates for those making significant investments in residential property, contrary to what the government had previously indicated.
- ISA Changes
The Budget announced an increased annual ISA allowance, rising from £15,240 to £20,000 from 6 April 2017.
In addition the government has introduced a new Lifetime ISA scheme, to facilitate saving for retirement or a second home. The ISA holder can deposit up to £4,000 annually up to the age of 50, to which the Government will add a 25% bonus each year. Additional contributions can be made without a bonus.
To benefit from the 25% uplift, the ISA funds must be used to buy the holder’s first home or withdrawn when the holder is at least 60 or diagnosed with a terminal illness. Funds withdrawn in other circumstances will not benefit from the bonus and be subject to a 5% charge.