Personal tax rates and allowances

16 March 2016

The main focus of the chancellor’s eighth Budget appeared to be long term saving and investment with a view to ensuring that Britain is 'fit for the future'.

From the personal tax perspective, apart from the decreases in the rates of capital gains tax to apply 6 April 2016 and the introduction of the Lifetime ISA, there did not appear to be any major unexpected news. However, he announced a changes which have a mixture of start dates – some from 6 April 2016, some start a year later.

Key points

From 6 April 2016 we will have:

  • an increase in personal allowances to £11,000; and
  • an increase in the 40 per cent rate threshold to £43,000.

From 6 April 2017 we can expect:

  • an increase in the personal allowance to £11,500;
  • an increase in the 40 per cent rate threshold to £45,000;
  • an increase in the ISA limit to £20,000 (currently £15,000); and
  • an introduction of the new Lifetime ISA whereby those under 40 can save up to £4,000 per annum and received a 25 per cent bonus on their saving from the government.

It was also announced that the fuel duty will be frozen, as the duty on whisky, spirits and beer – however, these will be offset by increases in tobacco duty and the introduction of a new sugar tax on fizzy drinks.

The impact overall

Increased personal allowance will no doubt benefit lower and middle earners and take out around 400,000 of the lowest earners from the tax system altogether. The increase in the higher rate threshold is also welcome news – overall, the government seems on track to deliver on its previous announcements on these measures by 2020.

Given the announced decrease in CGT rates, there is likely to be an overall move towards making longer term capital investments (other that residential property) aiming to make a profit subject to tax at a lower rate of 10 per cent or 20 per cent.

Whether the Chancellor’s plan to promote saving will be bolstered by the new Lifetime ISA and increase in the ISA limit is questionable: how many people (both under and over 40) in the current climate have enough spare cash to fully benefit from the proposed changes? So overall, are the announcements really going to make a difference to enough taxpayers to make a difference to the UK overall?

If you would like to discuss how these announcements might affect you please contact Kristina Volodeva or your usual RSM contact.