The Budget: what you need to know
Here are the top five things we think trainee accountants should be aware of. Salary sacrifice benefits For those involved in administering these schemes within your organisation, this one is […]
Here are the top five things we think trainee accountants should be aware of.
Salary sacrifice benefits
For those involved in administering these schemes within your organisation, this one is quite important. This Budget reiterates the Government’s concern about the growth of salary sacrifice schemes, with potential limits being introduced for such benefits that attract income tax and national insurance contribution advantages (ie private medical cover or life assurance). More details are still to be confirmed, but keep your eyes open for news on this.
For those working in, or with an interest in pensions, there will be minor changes to existing legislation to ensure it works as intended. These include:
- Extending the trivial commutation option to scheme pensions arisingfrom money purchase arrangements
- Applying tax at the marginal rate on a serious ill-health lump sum paid to someone aged over 75
- Enabling child dependants with a drawdown pension continued access to it after age 23
- Ensuring that the payment of (topped up) cash balance benefits on death meet is fully authorised.
The changes will come into effect the day after Finance Bill 2016 receives Royal Assent (approx. July 2016).
Corporation tax, restrictions and interest relief
A further reduction in Corporation Tax rate to just 17% by 2020 was announced, coupled with new restrictions such as a reduction in losses available for offset to just 50% (although pooling of group profits will be allowed going forward).
As anticipated, restrictions to tax relief for interest payments has been addressed. Going forward interest relief will be restricted to 30% of EBITDA – with some special measures for public infrastructure projects and earnings volatility. However, this looks set to be rushed through for next year, so look out for any complications that arise throughout the speedy implementation.
Property investment and Capital Gains tax
There are two key changes to the capital gains tax provisions:
1) The main CGT rate falls from 28% to 20%
2) Existing entrepreneurs’ relief provisions will be extended so that external investors also benefit from the 10% rate, subject to certain conditions.
There are also new tax reliefs on trading and property-related income for micro-entrepreneurs, and business rates thresholds are being increased so that up to half a million businesses will no longer be required to pay any rates. However, residential property investors will face a 3% rise on stamp duty land tax on residential buy-to-lets and all buy-to-let investors will pay the extra charge. For commercial property investors stamp duty rates will be more graduated.
Many of you may be saving, or looking to start doing so soon, so the Chancellor’s introduction of a new Lifetime ISA may well be of interest. Available from April 2017, these can be used as an alternative, or addition to, pension savings – or in connection with a first-time house purchase. Lifetime ISAs will be available to people under the age of 40, with a maximum annual (tax year) contribution of £4,000, of which the Government will then provide a 25% bonus on contributions.
Funds can be used to purchase a first home worth up to £450,000 after the account has been open for at least 12 months. There are other options for withdrawals but various fees will be applied. Contributions to the Lifetime ISA do count against the (increased) ISA allowance of £20,000, but not the pension’s annual allowance.
A quick note on personal tax: from April 2017 the level of the personal allowance will rise to £11,500 (it will be £11,000 from April 2016), and will rise to £12,500 by 2020. The higher rate (40%) tax band will rise from £43,000 for 2016-17 to £45,000 for the following year and £50,000 by 2020.