Personal tax regime experiences shake up in the Budget

The Chancellor used his latest Budget announcement to deliver a raft of changes to the personal tax regime.

George Osborne said that his latest Budget would be a statement for the next generation and he delivered on this promise by introducing a new Lifetime ISA.

The announcement of a Lifetime ISA could prove a boon for savers aged 18-40 and will see the government contribute £1 for every £4 saved up to a maximum of £4,000 per year.

An overall saving limit of £20,000 will be available to savers when the Lifetime ISA is launched on 6 April 2017. However, the money will only become accessible after the age of 60 or to help with the purchase of a first home. Many see this move as a way of introducing a Pension ISA to replace or support the state pension in the future.

Mr Osborne also announced an extension of entrepreneurs’ relief which he hopes will encourage investment in unlisted trading companies.

Newly-issued shares worth up to £10m purchased on or after 17 March will be eligible for relief provided they are held by an investor for at least three years from the 6 April 2016; a move which may be popular among those interested in medium to long-term investment.

That move is accompanied by a change in the rates on capital gains tax, which drops to 20 per cent from 28 per cent for higher and additional rate taxpayers and to 10 per cent from 18 per cent for basic rate taxpayers.

However, the beleaguered and battered property market will not benefit from this change and gains for residential properties and carried interests remain the same.

Self-employed workers will no longer have to pay Class 2 NICs from April 2018 after the Chancellor confirmed the charge will be abolished.

Staying with the self-employed, Osborne announced a crackdown on “off-payroll” workers in the public sector.

Under the changes, it will be incumbent upon employers to be responsible for applying the tax rules, rather than HMRC. This will be consulted upon in the coming weeks.

The Institute of Fiscal Studies (IFS) said the Budget’s measures will benefit the wealthiest 20 per cent in the UK, both in cash terms and as a proportion of income.

The influential think tank has warned that the Chancellor will have no other option but to impose “proper” tax rises in future or implement further spending cuts if the UK economy takes another turn for the worse.

Link: Budget 2016