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Now that we have got over the shock of George Osborne’s budget a fortnight ago, I thought that I’d summarise the main points that we at EST took away from it, and how it may affect you.

Individuals

Personal tax

Budget Feb2006The personal allowance (the amount you earn before you have to pay any tax) will be increasing from £10,600 to £10,800 starting in April 2016 (the 2016/17 tax year) and rising again to £11,000 in April 2017 (the 2017/18 tax year).

The basic rate band (the 20% tax band) will also be increasing by £315 in the 2016/17 tax year and by £600 in the 2017/18 tax year which means that you will be able to earn £43,300 before you hit the higher rate tax band where you pay 40% income tax.

It’s also good news to all you savers, from April 2016, the government will be introducing a tax-free personal savings allowance of £1,000 (or £500 if you are a higher rate tax payer) on the interest that you earn on your savings. Typically, individuals who had savings would use up their ISA allowance, which means that they did not have to pay any tax on their interest received but I have a feeling that ISA’s will no longer play such a large part going forwards. From April 2016, the banks and building societies will stop automatically deducting 20% income tax at source from your interest… Marvellous!

Landlords beware, if you are a higher rate tax payer, you will no longer be able to receive 40% tax relief on your mortgage interest. It will now be capped to a maximum of 20%. This is going to be phased in over the next four years so remember to consider this if you want to invest in bricks and mortar!

Dividends

Although I haven’t noticed this policy being brought up much in the news, it’s a “biggie” – especially for close limited companies who, for many years, have taken a nominal salary and dividends. The government has “simplified” the dividend structure by abolishing the dividend tax-credit (which was a 10% notional tax that as long as you remained in the basic rate band, no tax was payable on your dividends). In its place, they have brought in a Dividend Tax Allowance of £5,000 and they have also set new dividend tax rates. After we got over the initial shock that the government has finally changed the legislation on dividends, we started preparing calculations for our clients so that we can prepare and advise them for the up and coming changes. If you’d like to know how this will affect you, please feel free to give us a call!

Help to Buy ISA

Another popular policy being introduced is the “Help to buy ISA” (there are a couple of people in our office who are particularly keen on this!). For every £200 an individual saves towards their first home, the government will contribute an additional £50 (which is far higher than any interest you could receive) up to a maximum bonus of £3,000. BUT, if you have already opened up an ISA during this tax year, you will not be able to open a Help to Buy ISA until the next tax year (doh!). The bonus will be paid to you only when you purchase your new home.

Families

From September 2017, the free childcare entitlement will be doubled from 15 to 30 hours per week, therefore encouraging parents to go back to work.

The National Living Wage

George has introduced a National Living Wage for individuals who are over the age of 25. They have set themselves a target that all adults over the age of 25 will receive a minimum hourly rate of £9 by 2020.

Inheritance tax

The government has announced that they will be bringing in a new transferable nil-rate band of £175,000 per estate (when a main residence is passed to direct descendants), to hopefully remove the standard family home from inheritance tax.

Companies

 Starting in 2017, the corporation tax rate will be reducing by 1% to 19% and by 2020, it will be reducing to 18%.

The Annual investment Allowance was meant to be reducing from £500,000 (where it is currently) to £25,000 again but, they have now decided to set it at £200,000 starting in January 2016. This means that when you buy any business assets (not including motor vehicles), as long as they are qualifying assets, you can deduct the full value of the item when calculating your tax.

For those of you who remember receiving a letter from David Cameron himself a couple of years ago *insert winking face* giving employers a £2,000 Employment Allowance, the government has increased this to £3,000. This means that an employer can get up to £3,000 per year off their employers national insurance bill. Please be aware that some businesses are not eligible for this allowance, for example 100% NHS dental practices.

I hope that this helps to summarise the main points but if you’d like us to explain any of these changes to you, please let us know!