For those born after 5 April 1938 the personal allowance is currently £10,600. Those born before 6 April 1938 have a slightly higher allowance. Legislation has already been enacted to increase the personal allowance to £11,000 in 2016/17. From 2016/17 onwards one personal allowance will apply regardless of age.
Not everyone has the benefit of the full personal allowance. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 which is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200 (£122,000 for 2016/17).
Tax bands and rates
The basic rate of tax is currently 20%. The band of income taxable at this rate is £31,785 so that the threshold at which the 40% band applies is £42,385 for those who are entitled to the full basic personal allowance.
Legislation has already been enacted to increase the basic rate limit to £32,000 for 2016/17. The higher rate threshold will therefore rise to £43,000 in 2016/17 for those entitled to the full personal allowance.
The additional rate of tax of 45% remains payable on taxable income above £150,000.
Tax bands and personal allowance for 2017/18
The Chancellor has announced that the personal allowance will be increased to £11,500 and the basic rate limit increased to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 for those entitled to the full personal allowance.
The main rate of corporation tax is currently 20% and this rate will continue for the Financial Year beginning on 1 April 2016. In the following years the rate of tax will fall as follows:
- 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019.
- 17% for the Financial Year beginning on 1 April 2020.
The 17% rate from April 2020 is a reduction of 1% from the rate previously announced by the Chancellor in his Summer Budget in 2015.
CBI Director-General, Carolyn Fairbairn, said:
‘The reduction in the headline Corporation Tax rate sends out a strong signal that the UK is open for global business investment, and reforms to Interest Deductibility are rightly in line with the international consensus.’
Business rates have been devolved to Scotland, Northern Ireland and Wales. The Chancellor has announced cuts on business rates for half of all properties in England from 1 April 2017. In particular the government proposes to:
permanently double the Small Business Rate Relief (SBRR) from 50% to 100% and increase the thresholds to benefit a greater number of businesses. Businesses with a rateable value of £12,000 and below will receive 100% relief, rateable values between £12,000 and £15,000 will receive tapered relief increase the threshold for the standard business rates multiplier to a rateable value of £51,000 taking 250,000 smaller properties out of the higher rate.
The government also proposes to modernise the administration of business rates to revalue properties more frequently and make it easier for businesses to pay the taxes that are due.
CBI Director-General, Carolyn Fairbairn, said:
‘Businesses will welcome the Chancellor’s permanent reforms to business rates – taking more small firms out of the regime and changing the uprating mechanism from RPI to CPI, which the CBI has long been calling for.’
A new Lifetime ISA will be available from April 2017 for adults under the age of 40. Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.
Further details of the new account, which will be available from 2017, are as follows:
- Any savings an individual puts into the account before their 50th birthday will receive an added 25% bonus from the government.
- There is no maximum monthly contribution and up to £4,000 a year can be saved into a Lifetime ISA.
- The savings and bonus can be used towards a deposit on a first home worth up to £450,000 across the country.
- Accounts are limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together.
- Where an individual already has a Help to Buy ISA they will be able to transfer those savings into the Lifetime ISA in 2017, or continue saving into both. However only the bonus from one account can be used to buy a house.
- Where the funds are withdrawn at any time before the account holder is aged 60 they will lose the government bonus (and any interest or growth on this) and will also have to pay a 5% charge. After the account holder’s 60th birthday they will be able to take all the savings tax-free.
The Chancellor said in his speech:
‘My pension reforms have always been about giving people more freedom and more choice.
So faced with the truth that young people aren’t saving enough, I am today providing a different answer to the same problem.’
Internet link: GOV.UK lifetime-isa-explained
The current rates of capital gains tax (CGT) are 18% to the extent that total taxable income does not exceed the basic rate band and 28% thereafter.
The government is to reduce the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%. The trust CGT rate will also reduce from 28% to 20%.
The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private residence relief. In addition, the 28% rate still applies for ATED related chargeable gains accruing to any person (principally companies).
These changes will take effect for disposals made on or after 6 April 2016.
The rate for disposals qualifying for Entrepreneurs’ Relief (ER) remains at 10% with a lifetime limit of £10 million for each individual.