Budget Summary

On Wednesday, George Osborne made his eighth budget as chancellor.

The budget again was a favourable one for savers and introduced changes to savings rules, Capital Gains, Income Tax and confirmed the new Stamp Duty Land Tax (SDLT) regime for second homes, amongst other things. Despite the rumours, fuel duty was not increased, which will be good news for motorists, and Beer, Cider and Spirits duty was also frozen. Smokers will not be as happy however, as an increase of 2% above inflation on the excise duty on Tobacco was announced.     

Please find below a summary of the most relevant points for Private Client’s from the Budget 2016.

SDLT

The Government has confirmed changes to the rates of Stamp Duty Land Tax. Briefly, the rules will mean:

• As of 1 April 2016, you will have to pay an additional 3% SDLT on purchases of second properties if the consideration of that property is more than £40,000.
• If you are buying a property to replace your existing home, and you purchase a new property before selling your current property, you will have to pay the higher rate of SDLT, as you will at that point own two properties. If however you sell your old property within 36 months of purchasing your new property, you can claim the extra tax paid back.
• A transaction entered into by joint owners will be a higher rates transaction if the conditions set out above apply to any of the buyers. Persons who are beneficially entitled to property under a bare trust and beneficiaries of trusts who have a life interest or interest in possession in a residential property will be treated as the owners of that property for these purposes.
• Trustees will be liable to higher rates of SDLT where either no beneficiary has an interest in possession or a beneficiary who has an interest in possession already owns a residential property and the trust property is not replacing that beneficiary’s main residence.
• The draft legislation provides that the increased rates will not apply if an individual jointly owns an interest in a dwelling that was inherited in a three-year period ending on the effective date of the purchase of a new dwelling, provided that the individual's beneficial share in that interest does not exceed 50%.

Savings

• Annual ISA limit to rise from £15,240 to £20,000
• New "lifetime" ISA for the under-40s, with government putting in £1 for every £4 saved

Capital Gains

• Capital Gains Tax to be cut from 28% to 20%, and from 18% to 10% for basic-rate taxpayers. However, the current rates will continue to apply to chargeable gains made on residential property that does not qualify for the main private residence relief or carried interests.

Income Tax

• The threshold at which people pay 40% income tax will rise from £42,385 now to £45,000 in April 2017.
• Tax-free personal allowance, the point at which people pay income tax, is to rise from £11,000 in April 2016 to £11,500 in April 2017

In addition, the chancellor also made changes in health and education, including the introduction of a new ‘sugar tax’.

Small businesses did well out of the budget, with the annual threshold for 100% relief on business rates for small firms set to rise from £6,000 to £12,000 and the higher rate from £18,000 to £51,000, exempting 600,000 firms. The headline rate of Corporation tax will also fall from 20% to 17%. Stamp Duty on commercial properties has also been reduced.