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The Budget & other changes coming in from 6 April 2016The personal allowance - is currently at ?11,000 and will go up to ?11,500 for 2016/17. The government has promised this will rise to ?12,500 by 2020/21. The threshold for higher rate will go up from ?43,000 to ?45,000, except in Scotland (owing to devolved powers) where it will be ?43,000Many working-age benefits remaining unchanged for a second year, as part of a four-year freeze. These include Jobseeker's Allowance, Employment and Support Allowance, some types of Housing Benefit, and Child Benefit. However, state pensions, Maternity Pay and some disability benefits are excluded.The launch of a new?Lifetime Individual Savings Account?(LISA) for those aged between 18 and 40. They can save up to ?4,000 a year, and the government will add a 25% bonus if the money is used to buy a home or as a pension from the age of 60The start of a gradual process allowing people to?pass on property to their descendants free from some inheritance tax (see separate handout).National insurance tax rise for self-employed??The main rate of Class 4 National Insurance contributions for self-employed people to increase by 1% to 10% in April 2018 and 11% in April 2019, raising ?145m a year by 2021-22 at an average cost of 60p a week to those affected.Class 2 contributions - which have a lower threshold - will be abolished as planned in April 2018.Taken together, only the self-employed with profits over ?16,250 will have to pay more as a result of these changes. That is more than two million people.Taken together, millions of self-employed workers could pay an average of ?240 a year more but ministers say those earning ?16,250 will pay lessLandlordsMany buy-to-let landlords will see the amount of?tax relief that they can claim on mortgage interest payments?cut over the course of four years from April. They will only be able to claim at the lower rate of tax, not the higher (see Finance Costs below*)Wear and tear allowance abolished from 2016/17. Replaced by a new system from April 2016. The past wear and tear allowance allows landlords to deduct (broadly) 10% of their rental income in calculating taxable profit to allow for wear and tear. This allowance will be replaced by a system allowing landlords of residential property to deduct only the actual costs incurred on replacing furnishings in the tax year. Capital allowances for furnished holiday lets will not be affected. A technical consultation will be published later in the year to consider this further.*Finance costsAll landlords of residential property in or outside the UK, are permitted to claim relief for finance costs (e.g. mortgage interest) incurred on their let property, giving tax relief at 40% and 45% for landlords paying tax at the higher and additional tax rates. This tax relief will be restricted to the basic rate of income tax only (20%). Implementation will be phased from April 2017 as follows:2017/18 – the deduction from property income will be restricted to 75% of finance costs with the remaining 25% available at the basic rate.2018/19 – 50% of finance costs available for full tax relief and the remaining 50% available at the basic rate.2019/20 – 25% of finance costs available for full tax relief and the remaining 75% available at the basic rate.2020/21 – all financing costs incurred by a landlord will be given as basic rate tax reduction.Rent a room reliefIncreased from its current level of ?4,250 - where it has been frozen for 18 years - to ?7,500. This applies from 6 April 2016.OtherThe National Living Wage will rise from ?7.20 to ?7.50 in April, for those aged 25 and over. Public sector pay has already been set at a 1% annual rise each year until 2019-20The amount that can be saved in a tax-free Individual Savings Account (ISA) is rising from ?15,240 a year to ?20,000Salary sacrifice restricted for items such as computers, gym membership and health screeningDividends - From 6 April 2016The notional 10% tax credit on dividends was abolished.A ?5,000 tax free dividend allowance was introduced.Dividends above this level are taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate)Dividends received by pensions and ISAs are unaffectedDividend income are treated as the top band of income.Individuals who are basic rate payers who receive dividends of more than ?5,001 will complete self assessment returns from 6 April 2016.What's New?In his Spring Budget 2017 the chancellor announced that from 6 April 2018 the tax free dividend allowance would reduce to ?2,000 (previously ?5,000).Tax CreditsAny family which has a third or subsequent child born after April will not qualify for Child Tax Credit, which can be more than ?2,000 per child. This will also apply to families claiming Universal Credit for the first time after AprilThe family element of child tax credits, worth ?545 per year, will be abolished. So families in which the eldest child is born on or after 6 April will not receive this payment.Making Tax Digital - Next stepsFollowing the feedback from the Making Tax Digital consultations, the government announced at Budget 2017 that it will Provide 3.1 million small businesses and landlords and their agents with an extra year to prepare before they are required to keep digital records and send?HMRC?quarterly updates.Businesses that have an annual turnover below the VAT registration threshold will not be required to start keeping digital records and providing quarterly updates until April 2019, although they can choose to do so voluntarily.These changes are therefore being introduced gradually, starting in 2018 with Income Tax for businesses, self-employed people and landlords with annual turnover above the VAT threshold. In 2019-20 we will extend the Income Tax elements of Making Tax Digital to all businesses, self-employed people and landlords with annual turnover above ?10,000. We will then move on to VAT (2019) and Corporation Tax (2020). We will thoroughly pilot these changes with businesses from April, starting slowly and ramping up to hundreds of thousands, before rolling them out. This will ensure the software is user friendly and gives individuals and businesses time to prepare and adapt. Free software will also be available for businesses with straightforward tax affairs.The government has already pledged to remove the smallest businesses, self-employed people and landlords from the scope of the changes by exempting all those with annual turnover of less than ?10k from digital record keeping and quarterly updates (although they can still choose to enroll). This was in addition to those who were already removed from scope by the exemption for those with secondary income below ?10,000.The government also recognises that for some, digital is genuinely not an option and where this is the case, an alternative will be provided.Tax and InheritanceVery few people pay inheritance tax (IHT) and it raises relatively little money for the Treasury.Just 40,100 families - that's around 8% of estates - will pay any IHT at all in 2016/17, according to the Office for Budget Responsibility (OBR).Thanks to rising house prices, that number is set to rise over the next few years, but much more slowly than was originally expected.That's because the chancellor, George Osborne, has finally been able to make changes to IHT - changes that were blocked by the Liberal Democrats during the years of coalition government.So how does IHT work - and what reforms are already in the pipeline?When do you pay IHT?If you pass on property, or anything else of monetary value, to your descendants, you will pay IHT, but only if the total value exceeds ?325,000 in 2016/17.Anything above that amount will incur tax at 40%.Since married or civil partners can transfer assets free of tax between each other, one partner automatically inherits the other's allowance.So in practice, the IHT allowance is often doubled to ?650,000.In other words, if a father passes wealth to a mother, who subsequently also dies, she can pass on up to ?650,000 without having to pay IHT.Forthcoming changesFrom April 2017, the government will introduce a new Transferable Main Residence Allowance (TMRA), to help people pass on property to their descendants.Initially this will be set at ?100,000, rising to ?175,000 by 2020/21.When added to the IHT threshold of ?325,000, it will allow each individual to pass on ?425,000 with no tax payable - or ?850,000 per couple.By 2021, the tax-free limit will be ?500,000 each, or ?1m for married or civil partners.IHT allowances 2016- 2021Tax yearTMRATotal allowance per person2016/17nil?325,00017/18?100,000?425,00018/19?125,000?450,00019/20?150,000?475,00020/21?175,000?500,000source: HM TreasuryTrustsEven if a parent sets up a trust in favour of a child, inheritance tax is still payable. In most cases, IHT will be charged at 20% on money or property when it goes into the trust, if it exceeds the IHT allowance.If the parent dies within seven years, an additional 20% is charged, to equal the 40% non-trust rate.In addition, assets within a trust are usually re-assessed every ten years, to take account of changing property valuations, for example.GiftsUnder the existing rules, you can pass on money, property or possessions without paying any tax, as long as you survive for seven years after giving it to the recipient.If you die within the seven year period, and you gift more than the allowance, a taper system exists. If you die six years after making the gift, for example, you will only pay 8% IHT. See table below.In addition you can give up to ?250 a year to as many people as you like without paying tax.Usually it is the estate which is liable for IHT. However if you are the recipient of a gift, and the giver has died within 7 years, and has already given away more than ?325,000, you could be liable to pay IHT yourself.IHT taper rates for giftsTime since the giftIHT rate7 years0%6-7 years8%5-6 years16%4-5 years24%3-4 years32%less than 3 years40%source: HM TreasuryAnyone can give away up to ?3,000 a year, and pay no tax. This is known as the annual exemption. If unused, this allowance can be carried over to the following year, up to a maximum of ?6,000.In addition, if you can show that the gift was funded out of income - as opposed to savings - you will not pay IHT. But you may have to prove that the living standards of the deceased person were not reduced as a result.Wedding giftsThe rules around wedding - or civil partnership - gifts are different again. Providing the gifts are made at the time of the wedding, there are allowances as follows:?5,000 can be given tax-free to a child?2,500 can be given to a grandchild or great grandchild?1,000 can be given to anyone ................
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