Corporation Tax Rates
The rates for Corporation Tax are to drop, currently at 20% the rate will decrease to 19% in 2017 and a further decrease to 18% in 2018.
Annual Investment Allowance
From 1st January 2016 the Annual Investment Allowance for businesses investing in plant and machinery will decrease from £500,000 to £200,000. Over the past couple of years this allowance has changed regularly, however in the budget it has been announced that this new amount of £200,000 will stay for the foreseeable future. For most smaller businesses this lower amount will still be sufficient to cover their annual plant & machinery expenditure.
The very popular Employment Allowance will increase to £3000 from April 2016. However the allowance will not be available where the director is the sole employee .
Taxation of Dividends
The rates at which Dividends are taxed are set to change. Under the current rules no income tax is due on Dividends received where they are within the basic rate band for individuals. From April 2016 this will change, the first £5000 of Dividend income will be tax free, however any amounts received over and above this rate will be taxed at an effective tax rate of 7.5%/32.5% or 38.1% depending on whether you are a basic, higher or additional rate tax payer.
From April 2016 the Personal Allowance for individuals earnings less than £100,000 per year will increase from £10,600 to £11,000.
Higher rate tax bracket.
From April 2016 the higher rate tax band will increase from £42,385 to £43,000.
Inheritance tax thresholds raised
The threshold for Inheritance Tax is set to increase. The current IHT threshold is £325,000 per person, from 2017 this will increase to £500,000 per person.
This means that married couples can transfer their £500,000 entitlement , thus enabling couples to pass down properties worth up to £1 million to children and grandchildren without being charged at the 40% threshold.
However for individuals with property worth over £2 million ,the policy will be tapered , therefore meaning that they will not see any of the benefits.
Rent a room relief- From April 2016 this will rise from £4,250 to £7,500. Small Bed and Breakfast’s will also be able to claim the relief too, as long as the owners live on the premises.
Removal of the Wear and Tear Allowance – From April 2016 the Wear and Tear Allowance will be removed. Instead landlords will claim a deduction for the expenditure in the tax year that it is incurred.
Restriction on the tax relief available on interest – From April 2017, tax relief for Interest on buy to lets will be restricted to 20%. This means that the interest charged will not be an allowable expense when computing the profit on the buy to let(s), instead relief will be available at 20%. For larger property portfolios, buy to let properties with high interest charges each year or individuals who pay tax at the higher or additional tax rate on their property income, this change could mean that the tax they pay on their property income will significantly increase, or they may find that their property portfolio is no longer as viable as it was and they may consider selling the properties.
This are just some of the main points taken from Budget, if you want to discuss any of the points further, do not hesitate to contact us.