Budget 2016: significant changes to tax announced

The Chancellor has delivered the budget for the 2017 financial year with some significant tax changes being announced. Here are some of the key changes to be aware of:

  • The higher rate threshold for income tax (the amount that individuals start paying tax at 40%) will increase to £45,000 from April 2017.
  • From April 2017, there will be a new £1,000 tax free allowance for property rental income.
  • Capital Gains Tax rates will be lowered to 20% for higher and additional rate taxpayers, and 10% for basic rate taxpayers. The rates are currently 28% and 18% respectively. The changes will be effective from the tax year 2016/2017. However, the lower rates will not apply to gains on the sale of residential property.
  • Corporation tax will be cut to 17% by 2020.
  • Class 2 National Insurance contributions will be scrapped from April 2018. From April 2018, individuals will only have to make Class 4 National Insurance contributions in respect of their self-employment income.
  • Stamp Duty Land Tax rates will be reformed  for commercial property from 17 March 2016. The current rates apply to the whole transaction value, but this will be reformed so that the rates apply to the value of the property over each band in a similar way to residential property. 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.
  • Entrepreneurs’ relief will be extended to external investors in unlisted trading companies. This will remove the requirement to be an employee or hold 5% or more of the shares for unquoted shareholdings.

  • The rate of tax charged on loans to participators (currently 25%) will be 32.5% from 6 April 2016.

  • Non-residential property developers will be brought into the scope of UK tax on the profits earned from developing UK property, regardless of the residence of the company carrying on the trade. This will ensure that a non-resident is subject to tax on profits from a UK property trade.