Take a look at all the key announcements from today’s Budget that will affect you and your clients.
Although the initial atmosphere was quite subdued thanks to the last minute announcement that we would not get the long anticipated pensions tax relief reforms in this Budget, George Osborne delivered a bombshell with the unveiling of a lifetime Isa.
Here are today’s top announcements from the red box in short and snappy form.
The lifetime Isa
The government unveiled the launch of a lifetime Isa intended to help young people save flexibly for the long-term on the back of concerns that people in their 20s and 30s found pensions too complicated and inflexible.
From April 2017, people who open a lifetime Isa account between the ages of 18 and 40 will receive an added 25% bonus from the government on any savings they put in before their 50th birthday.
You can save as little or as much as you want to each month, up to £4,000 a year.
After your 60th birthday you can take out all of the savings tax-free. You can withdraw the money any time before you turn 60 for other reasons but you will lose the government bonus (and any interest or growth on this) and you will also have to pay a 5% charge.
Capital gains tax
From April 2016 the higher rate of capital gains tax will be cut from 28% to 20% and the basic rate from 18% to 10%.
Lifetime allowance / Annual allowance
Despite fears over both being tampered with, there were no announcements over the lifetime allowance or annual allowance which means they will stay at £1 million and £40,000 respectively.
From April 2017 the total amount you can save each year into all ISAs will increase from £15,240 to £20,000.
From April 2017, the tax-free personal allowance will be increased to £11,500, which will take 1.3 million people out of income tax altogether.
The personal allowance is currently at £10,600 and is set to rise to £11,000 in 2016.
Higher rate tax threshold
The point at which you pay the higher rate of income tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.
Pension advice allowance
The government will consult on introducing a pension advice allowance over summer 2016 which will allow people to withdraw £500 tax-free before the age of 55 from their defined contribution pension to redeem against the cost of financial advice – the exact age at which people can do this will be determined by consultation.
Pension freedoms progress
A number of technical amendments to support pension freedoms including
- Re-aligning the tax treatment of serious ill-health lump sums with lump sum death benefits so they can be paid tax-free when someone under 75 has less than a year to live but has already accessed their pension
- Making serious ill health lump sums taxable at an individual’s marginal rate when paid in respect of individuals aged 75 and over
- Legislating to convert dependents’ flexi-access drawdown accounts to nominees’ accounts when dependents turn 23 so they do not have to take their funds as a lump sum taxed at 45%
- Legislating to allow defined contribution pensions already in payment to be paid as a trivial commutation lump sum, where total pension savings would be under £30,000.
- Making top ups to fund dependants’ death benefits authorised payments
Salary sacrifice stays
Last minute murmurs claimed salary sacrifice would be abolished but the government made it clear it was here to stay. Although the government is considering limiting the range of benefits that attract income tax and National Insurance contributions (NICs) advantages when they are provided as part of salary sacrifice schemes, pension saving, childcare and health-related benefits such as Cycle to Work will continue to benefit under salary sacrifice arrangement
MAS, TPAS and Pension Wise restructure
The government will restructure the statutory financial guidance providers: the Money Advice Service, The Pensions Advisory Service and Pension Wise to ensure consumers can access the help they need to make effective financial decisions. The government will look at a new pensions guidance body and a new, slimmed down money guidance body.
Abolition of class 2 NICs
Class 2 NICs for self-employed people will be scrapped from April 2018. Currently, self-employed people have to pay class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year. They also pay class 4 NICs if their profits are over £8,060 per year. From April 2018, they will only need to pay one type of national insurance on their profits, class 4 NICs.
The government has announced corporation tax will be cut to 17% in 2020, which will benefit over 1 million businesses. The tax had already been cut from 28% in 2010 to 20%.
Stamp duty on commercial property will be altered. Currently, the rates apply to the whole transaction value but from 17 March this year the rates will apply to the value of the property over each tax band.
The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000.
Stamp duty rates for leasehold rent transactions will also change with a new 2% stamp duty rate on leases with a net present value over £5 million.