Budget 2016

So, up until a couple of weeks before this budget, we were expecting pretty swingeing changes to the pension system. George backed off from that, at least for now. But he had some other announcements up his sleeve and we’ll take a look at those today,

I’ll be sticking to the personal finance related stuff, rather than messing about with duty on fags and, at the other end of the scale, with the macroeconomic stuff.

1 – Savings and Pensions

Firstly, the ISA allowance will be increased to £20,000 from April 2017, while staying at £15,240 for the coming tax year (16/17)

The big new announcement was the new Lifetime ISA (presumably to be called ‘LISA’) which will be introduced form April 2017.

It will be available for those aged between 18 and 40 on April 6th 2017. These people can contribute up to £4,000 per year, and this will be topped up by 25% by a government bonus at the end of the tax year. This is similar to pension tax relief for BR payers, but a bit different.

One can contribute to a LISA up to age 50, so maximum of 32 years from age 18.

32 years x £4,000 = £128,000, plus £32,000 of bonus, plus the growth on both – a useful su of money.

The £4,000 limit will be included within the £20,000 overall ISA contribution limit, but you can transfer from other ISAs into a LISA to fund the £4k limit. Only one LISA per year is allowed per person.

Withdrawals can be made with no implications for:

• house purchase deposit up to £450,000 or,
• for retirement planning after age 60.

The LISA will be accessible at other times, but government bonus plus the growth on it must be returned, and a 5% exit penalty too – pretty swingeing.

I can see the LISA being a forerunner of a new kind of pension, with limited tax relief and some limited access before retirement – we’ll see.

There’s a really good factsheet here, produced by the Government, all about LISA and how she’ll work.

2 – Small business

Some good news for small business owners: Corporation tax is reducing to 17% by 2020 from the current 20% rate.

More importantly, Small Business Rate Relief is being overhauled from April 2017. Where the rateable value is less than £15,000 businesses will pay no business rates (the threshold is currently £6,000). The higher rate threshold is also rising from £18,000 to £51,000.

According to the Chancellor, this means that 600,000 businesses will pay no business rates, and 250,000 will pay less than they currently pay.

A small fillip for the self-employed too: Class 2 National Insurance contributions will be abolished (flat rate £2.80pw) from 2018

3 – Tax

There will be new rates of Capital Gains Tax introduced from April 2016. these will be 10% is the taxable gain falls in the Basic Rate Tax band, and 20% if it falls within the Higher Rate Tax band.

BUT, George said that “The old rates will be kept in place for gains on residential property and carried interest. That’s an 8% surcharge for residential property, clearly designed to encourage investing in companies over property.

If you’re wondering, carried interest is a share in the profits of alternative investments e.g. Private equity and hedge funds.

Summary

Of course there were many other announcements, but these are the key things for those interested in personal finance I reckon

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