Although the outlook for the UK economy is not as bright as it was when the Autumn Statement was announced at the end of last year, the Chancellor still managed to deliver a fairly ‘upbeat’ Budget, which was designed to help small businesses.
The main points of interest for dentists are:
Corporation tax rates
The current rate of corporation tax is 20%. This will be reduced gradually so that by April 2020 it will be 17%.
This is fairly low compared to some of the UK’s major competitors and is obviously good news for those that trade as limited companies.
From 1 April 2017 the Small Business Rate Relief will be permanently doubled from 50% to 100%.
Also, the thresholds will be increased so that practices with a property with a rateable value of £12,000 and below will receive 100% relief, while businesses with a property with a rateable value between £12,000-£15,000 will receive tapered relief.
Stamp Duty on commercial property
The Chancellor has reduced the rates of Stamp Duty on lower priced commercial property. There will be no charge on properties costing up to £150,000, 2% on the next £150,000 and 5% above this.
For those who wish to buy or have bought commercial property as an investment, this is good news and is effective from 16 March 2016.
Class 2 National Insurance
For those of you who are self-employed, the good news is that class 2 National Insurance is being abolished from April 2018.
Capital gains tax
The current rate of capital gains tax is a flat rate of 28%. From 6 April it is being reduced to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers. This does not include gains on the sale of properties.
Although the details were not clear at the time of writing, it seems that the Chancellor is bringing in a new lower rate of capital gains tax for long-term investors in unlisted companies. For up to £10m of lifetime gains, the flat rate will be 10%. This appears to be an extension of entrepreneurs relief.
Savings and investments
There was good news on pensions as it was expected that all or part of the tax free lump sum, currently a maximum of 25% from a private pension scheme, would become taxable. It was also expected that tax relief on premiums paid into a pension scheme would be limited to a basic rate tax. The Chancellor did not introduce either of these measures.
As far as ISA’s are concerned, the current maximum is just over £15,000 per annum. This will be increased from 6 April 2017 to £20,000 per annum. Furthermore, a new ‘Lifetime ISA’ is being introduced for those under 40. At the time of writing it was not clear what the entry age is but it will probably be 16 or 18 years. Those who qualify will be able to invest up to £4,000 per annum into a Lifetime ISA and the government will add an additional £1,000 pa for each £4,000, ie paid as a ‘gift’. It is assumed that the £1,000 gift will be reduced pro rata for investments of less than £4,000.
Changes to personal allowances and income tax rates
From 6 April 2016 the personal allowance, ie the amount that can be earned before tax is paid, will be £11,000. From 6 April 2017 this is being increased to £11,500 (personal allowances are reduced for those earning more than £100,000 and by the time £122,000 is reached, the personal allowances are reduced to nil).
Furthermore, the level at which the 40% tax band comes into play, currently £42,825, will increase to £45,000 from 6 April 2017. Therefore, effectively, the 40% band will not start until income is £56,500 pa. This is particularly useful for those who share income with lower rate tax paying spouses.
Annual tax on envelope dwellings (ATED)
Although the above was introduced in 2012, it will not really start to ‘bite’ until April 2016. From that date, limited companies that own a residential property with a value of more than £500,000 on 1 April 2016 will be subject to an ATED. However, if the property is let out at a commercial rate to a non-connected person it will be exempt from this.
For properties between £500,000 and £1m, the annual tax is £3,500. For properties between £1m and £2m, the annual tax is £7,000. For non-exempt properties, there will be another ‘sting in the tail’ as Stamp Duty will increase from April 2016 to 15% on the purchase of these properties. However, once again, if the property is let out commercially, to unconnected persons, then the normal rates of Stamp Duty will apply. If the property is let out initially but for less than three years, the Stamp Duty relief will be clawed back.
An ATED tax return is required, even if the property is exempt. This has to be filed by 30 April following the year of assessment. So for 2015/16 the return has to be filed by 30 April 2016.