Changes to the tax free personal allowance, cuts in capital gains tax and the introduction of the Lifetime ISA for the under-40s were the headline-grabbers delivered by Chancellor George Osborne in a Budget he described as “putting stability first” and offering “long-term solutions to long-term problems”.
From April next year, the amount that can be earned before basic rate tax is paid will rise to £11,500, while the threshold for higher rate tax will be increased to £45,000 (from £42,385).
Capital gains tax for higher rate taxpayers will fall to 20%, while for basic rate taxpayers the rate will be cut to 10%.
The Chancellor also announced that the amount that can be paid into an ISA will rise in April 2017 to £20,000, while also introducing the Lifetime ISA. In this scheme the government will pay in 20% of the sum paid in, the upper limit for payment being £4,000 a year. Mr Osborne described this as a tax-free way of saving for a pension.
Other highlights include:
The economy: Set to grow by 2% next year, according to the Office of Budget Responsibility (OBR) – provided, Mr Osborne said, that Britain votes to remain within the European Union. Leaving will create “disruptive uncertainty”, he commented.
Public spending: The Chancellor said the government’s efficiency drive will continue, with the aim of saving a further £3.5 billion by 2019-2020. In the public sector, employer’s pension contributions are set to increase.
Tax avoidance/evasion: The government is set to crackdown on the use of personal service companies – which will raise £12bn – and disguised remuneration schemes.
The corporate world: By April 2020, the corporation tax rate will have fallen to 20%. The Chancellor also announced a crackdown on tax evasion, with overborrowing, the hybrid mismatch rules and the use of royalty payments all to come under HMRC scrutiny.
Small business: Mr Osborne announced a £1,000 tax break for micro-businesses working in the digital sector. Small business rate relief will rise to limits of £15,000 and £51,000 (depending on size), meaning 6,000 small businesses paying no rates at all. A further 250,000 will see their rates cuts. This will represent a tax cut of £7bn for the UK’s small firms, the Chancellor claimed in a “Budget for small businesses”.
Stamp duty: To raise £500m a year, from Thursday 17 March commercial stamp duty on properties up to £150,000 will be zero. The rate will be 2% on the next £200,000 with a top rate of 5% on £250,000.
Miscellaneous: Tax relief on financial advice is to be introduced. Insurance Premium Tax to be raised to 10% from 9.5%, with the extra £700m raised being used to improve flood defences in the north of England. In the transport infrastructure sector, investment will be made in HS3 (Manchester–Leeds), Crossrail 2 (London) and other road and rail projects, mainly in the north of England. In the health sector, a ‘sugar tax’ will be levied on the soft drinks industry (from 2018). The £520m this measure is expected to raise will be used to fund more sport in schools. In education, all students will study mathematics up to the age of 18.
Indirect taxation: There will be no increase in fuel duty or excise duty on beer, cider or whisky. Other alcohol duties will rise in line with inflation, with cigarettes rising at inflation plus 2%. Tolls on the Severn Crossing to be halved by 2018.