Budget 2016: Our Analysis

1.1 A Budget for entrepreneurs

The focus of the 2016 Budget was very much on entrepreneurs, savings and tax. Measures designed to boost the enterprise economy sat alongside a flexible lifetime ISAs and changes to capital gains tax. While small and medium-sized enterprises fared relatively well, the Chancellor continues to clampdown on larger businesses, for example, with interest relief due to change for large multinationals, although overall the changes for them were quite reasonable.

The Government confirmed that the pension tax will not change for now, although what's really needed is a longer-term pensions tax plan to allow people to plan their retirement with more certainty.

The following were among the key Budget announcements:

Entrepreneurs' relief - the reintroduction of the availability of capital gains tax (CGT) entrepreneurs' relief on goodwill when a business is transferred to a company is welcome news. The tax relief has been backdated, so anyone who has incorporated on or after 3 December 2014 should check to see if they are entitled to take advantage of this pragmatic change. Two other welcome backdated relaxations were also announced. Tax relief on historic company losses - on the plus side for many businesses, there will be welcome changes for the relief of losses from April 2017, bringing the UK system more in line with its G7 neighbours. It means far fewer SMEs will end up with trapped unusable losses in the future. For companies with profits over £5m there will be some restrictions, but the Government expects this to affect only about 1% of UK companies. ISAs - changes to the ISA rules are an interesting compromise between encouraging spending in the economy and encouraging younger people to save for retirement. Increasing the ISA allowance to £20,000 will mean more people's savings will stay outside the tax net. The new flexible lifetime ISAs - if they allow for withdrawals and replacement of savings - will help younger people save for a home and then top-up again as they get older. Capital gains tax - the Chancellor's plan to reduce CGT rates (from 28% to 20% and 18% to 10% for higher rate and basic rate taxpayers, respectively) is welcome for entrepreneurs and others investing in businesses, as well those with large share portfolios who may be hit from April 2016 by the higher taxes on dividends. It's yet another disappointment, however, for owners of buy-to-lets and second homes who fail to benefit from this latest initiative. 2. Personal and trust taxes

2.1 Personal allowance and higher rate threshold increase

Planned increases to the personal allowance and higher-rate threshold for 2016/17 were confirmed with announcements made for 2017/18.

The personal allowance will increase to £11,000 for 2016/17 and to £11,500 for 2017/18. Following the phasing out of age-related personal allowances, there is only one level of personal allowance, regardless of the taxpayer's age.

Higher rate taxpayers also receive a boost and many taxpayers will be taken out of higher rate tax, following confirmation of an increase in the higher rate threshold to £43,000 for 2016/17 and £45,000 for 2017/18. A corresponding increase will apply to the NIC upper earnings limit to ensure that the thresholds remain aligned.

Comment

The higher than previously trailed increase to the personal allowance and higher rate threshold from April 2017 is welcome news and reflects the Government's pledge to increase the personal allowance to £12,500 and higher rate threshold to £50,000 by the end of the current parliament.

However, as previously highlighted, not all taxpayers benefit from the increases to the personal allowance. Those...