2016 Budget - Some Reflections

Posted 12 April 2016
Written by Kelly Mc Carthy
The Budget on 16 March was, despite prompting the resignation of a senior member of the cabinet, in many respects a case of “steady as she goes”.  That said, there were a number of changes which will affect transactions where lawyers are routinely involved.

From the point of view of a wills and probate solicitor, the tax position for estates has improved, and there were a number of adjustments to tax rates and thresholds which will reduce the tax bills for those affected.

In terms of personal taxation, the personal allowance for income tax in the 2016/2017 tax year is £11,000 and this will rise to £11,500 in 2017/2018. The threshold for higher rate income tax will be £43,000 in 2016/17 and £45,000 in 2017/18.  These thresholds are also relevant in relation to Capital Gains tax.

​​image of 2016 budget suitcase Capital Gains tax is the tax that interests me most in my area of work, and it is here that the budget made a number of significant changes. At present, many estates are facing a potential Capital Gains tax issue due to the buoyant property market. Often, a property is valued for probate purposes only to have increased in value by time a buyer is found. The annual allowance (i.e. the amount of gain an individual can make in any one tax year without incurring a tax charge) will remain static at £11,100. However, the rates of Capital Gains tax have been lowered significantly, which will be welcomed by many. The rate of Capital gains Tax for lower rate income tax payers is reduced from 18% to 10%. The higher rate of Capital Gains Tax (i.e. the rate paid if the gain takes you into the higher rate income tax bracket) is reduced from 28% to 20%. Estates pay Capital Gains Tax at the higher rate but a reduction in the rate of nearly a third is welcome news.

​For my colleagues carrying out property work, changes to the rates of stamp duty land tax have been significant. From midnight on 16 March the commercial rates of Stamp Duty Land Tax changed to 0% on purchases of up to £150,000, 2% on the next £100,000 with a 5% top rate above £250,000.   So far as residential property is concerned there are wide ranging changes.  Where a property is not being purchase as the buyer’s only or main residence, they will now pay a 3% surcharge on the basic rate of Stamp Duty Land Tax. The bands are now as follows
0- 40,000 0%
0 -125,000 0%
125,001 – 250,000 2%
250,001 – 925,000 5%
925,001 -1,550,000 10%
1,500,001 and over 12%

Thus, for those purchasing a second property, the rate on purchases up to £125,000 is 3%, for properties in the band £125,000 - £250,000, 2%, and so on to a maximum percentage of 15%.

Another notable change are the steps which were taken to increase the amount of tax free savings an individual can invest, perhaps to compensate for the fact that interest rates are currently so low. The annual ISA limit is to rise from £15,000 to £20,000. In addition, to encourage people starting out on the property ladder to save a deposit and to boost their funds, the government has introduced a ‘lifetime’ ISA. Such an ISA is only available if you are under 40, works on the basis that £4,000 can be contributed by an individual per year, with a 25% bonus applied by the government. From 12 months after the account opened, the funds can be used to buy a first home. Alternatively, the funds can be withdrawn when the individual reaches 60.

HM Treasury’ overview of tax policy announcements runs to many pages and the above is simply an overview of some of the announcements which will have the greatest impact on what I do.