After much speculation in the months preceding today’s budget, it was with much anticipation that we all sat down to watch the Chancellor deliver his speech at 12:30 pm. In the past week it became clear that the predicted cuts to pension contributions and further reductions to the Lifetime Allowance were not going to materialise. Few had predicted some of the announcements that in fact were made; in particular those relating to Capital Gains Tax and ISA savings.
Below we summarise the key points from the Government’s budget for the ‘next generation’ from a financial planning perspective.
• Perhaps one of the biggest surprise announcements was the cut to Capital Gains Tax (CGT). On 6 April 2016 the headline rate will be cut from 28% to 20%, and from 18% to 10% for basic-rate taxpayers. Residential property will still be taxed at current rates.
• The annual ISA limit will rise from £15,000 to £20,000 in April 2017.
• In a further boost for savers, a new “lifetime” ISA for the under-40s will be introduced. The new savings vehicle, to be introduced in April 2017, will see the government putting in £1 for every £4 saved up to a maximum of £4000.
• Commercial stamp duty 0% rate on purchases up to £150,000, 2% on next £100,000 and 5% top rate above £250,000. New 2% rate for high-value leases with net present value above £5m. Effective from midnight on 16/3/16.
• The headline rate of corporation tax – currently 20% – will fall to 17% by 2020.
• The annual threshold for small business tax relief to be raised from £6,000 to a maximum of £15,000, exempting thousands of firms.
Other key points
• The threshold at which people pay 40% tax will rise from £42,385 to £45,000 in April 2017.
• The tax-free personal allowance will rise to £11,500 in April 2017.
The budget delivers positive news for many small businesses, and makes some moves in the right direction for savers.
The introduction of the Lifetime ISA was certainly a surprise and can be seen as a deliberate move away from pensions as a means of saving for retirement. It will be interesting to follow the further details on this and the caveats applicable as more details are revealed over the coming days.