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Today, 6th April 2016, witnesses the start of another new tax year. As with any new tax year, the usual changes in personal taxation will come into force (such as the fluctuations in the personal allowances and tax thresholds), but the 2016/17 tax year will also introduce some unexpected changes, therefore it is important to consider the impact of these changes on both your personal and business circumstances. 

This is particularly the case for limited company director-shareholders with the new dividend tax regime effective from today, and for buy to let investors with changes in stamp duty, exemptions from the new decreases in capital gains tax rates for the sale of their residential buy-to-let properties, and the abolition of the ‘wear and tear’ allowance.

Key changes effective for the new tax year from 6 April 2016 are summarized as follows:

Personal Taxation

  • The tax-free personal allowance has risen to £11,000 for the 16/17 tax year (from £10,600 for the 15/16 tax year)

  • All individuals will be entitled to the same personal allowance regardless of their date of birth

  • The threshold at which individuals pay 40% tax (the basic rate band) has risen to £43,000 (from £42,385 for the 15/16 tax year)

  • The upper profits limit for class 4 national insurance contributions has risen to £43,000 (from £42,385)

  • Capital gains tax has been reduced considerably from 28% to 20% for higher rate taxpayers, and from 18% to 10% for basic rate taxpayers, but the new rates do not apply to transactions involving residential property or carried interest. Capital gains tax rates for these will continue to be 18% and 28% respectively

  • The personal savings allowance has been introduced. This is set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Individuals can earn this much in interest before any tax is therefore due

  • The new dividend taxation regime has started, which entitles individuals to a £5,000 tax free dividend allowance and abolishes the old 10% tax credit system (therefore dividends will be stated on an individual’s personal tax return at the net amounts rather than grossed up). However, the use of the £5,000 does form part of an individual’s basic rate band, and any dividend income in excess of the  allowance will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers

  • Class 2 NIC will be collected through your personal tax return (as opposed to a monthly or quarterly charge)

  • ISA limits will continue at £15,240 (as per the 15/16 tax year) until April 2017 when they will rise

  • The marriage allowance has increased to £1,100 (from £1,060 for the 15/16 tax year)

  • The car fuel benefit charge multiplier has increased to £22,200 (from £22,100 for the 15/16 tax year)

  • The van benefit charge has increased to £3,170 (from £3,150 for the 15/16 tax year)

  • The new ‘single rate’ state pension becomes payable for individuals who reach state pension age after today. Those individuals will be encompassed in the new single tier state pension system under which a single payment replaces the current set up of a basic state pension plus a ‘second’ state pension

  • There is a new tax on top earners’ pension which states that those with income in excess of £150,000 have a reduced pension contribution limit which has decreased to £10,000 (from £40,000 for the 15/16 tax year)

  • Stamp duty has increased for buyers of additional residential properties (including buy to lets and second homes). Buyers will now have an extra 3% payable in stamp duty (effective from 1 April 2016)

  • The removal of the ‘wear and tear’ allowance. Previously, a landlord could claim 10% of their rent as tax relief for wear and tear, but this is no longer the case. Instead, the allowance is being be replaced by a system that only allows landlords to claim tax relief when they replace furnishings

Business Taxation

  • Employers to legally pay the National Living Wage to individuals aged 25 and over, amounting to £7.20 per hour (effective from 1 April 2016)

  • The Employment Allowance has increased to £3,000 (from £2,000 for the 15/16 tax year). However, further anti-avoidance rules will come into force today including the potential exclusion of single director companies

  • Corporation tax to remain at 20%

  • New stamp duty rates on commercial properties (effective from 17 March 2016) The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000. Therefore buyers of commercial property worth up to £1.05 million will pay less in stamp duty this tax year

  • Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million.

If you require further information on any of the above, please do not hesitate to contact a member of the Spirare team.