Insurance Premium Tax
The standard rate of Insurance Premium Tax (IPT) will be increased from 9.5% to 10%. This ensures that the impact of the rate increase is spread broadly across the entire general insurance industry.
IPT is a tax on insurers. However, if they do pass the cost of this rate increase onto their business and household customers, the average combined home and contents insurance would only increase by £1, and the average motor insurance premium by £2 per year.
All the revenue raised from this increase in IPT will be invested in flood defence and resilience measures.
Residential additional properties
As part of the government’s commitment to support home ownership and first-time buyers, the Autumn Statement 2015 announced that from 1 April 2016, higher rates of Stamp Duty Land Tax (SDLT) will apply to purchases of additional residential properties, such as second homes and buy-to-let properties. The higher rates will be 3 percentage points above the current SDLT rates and will apply to purchases of additional residential properties in England, Wales and Northern Ireland.
Following consultation, the government announced in Budget 2016 that it has decided that:
- To help those moving in difficult circumstances, purchasers will have 36 months rather than the originally proposed 18 months to either claim a refund from the higher rates or before the higher rates will apply, in the event that there is a period of overlap or a gap in ownership of a main residence; and
- There will be no exemption from the higher rates for significant investors, and the higher rates will apply equally to purchases by individuals and corporate investors
From 6 April 2016 there will be no higher age related personal allowance for people born before 6 April 1938 which means that the basic personal allowance for everyone will be £11,000. This will increase to £11,500 from 6 April 2017.
Capital Gains Tax
From 6 April 2016, the Capital Gains Tax (CGT) rate of 18% for non, starting rate and basic rate tax payers will be reduced from 18% to 10% and the 28% rate for higher and additional rate taxpayers (and most trusts) will be reduced to 20%.
The annual exempt amount will remain at £11,100 (for individuals) and £5,550 (for most trusts).
The nil rate band will continue to be frozen at £325,000 until 2020/21.
The rate of IHT during lifetime remains at 20% and the rate on death remains at 40%.
Individual Savings Accounts
In 2016/17, the annual ISA allowance will remain at £15,240. From 6 April 2017, the annual ISA allowance will then increase to £20,000.
The Lifetime ISA
From April 2017, people under the age of 40 will be able to open a Lifetime ISA and contribute up to £4,000 in each tax year. The government will then provide a 25% bonus at the end of the tax year on the contributions that have been made. This means that anyone who saves the maximum amount in the tax year will be subject to a £1000 bonus. Savers will be able to make contributions from the age of 18 up to the age of 50.
The Lifetime ISA aims to help young people save flexibly for the long-term throughout their lives. It will help them to simultaneously save for a first home or for their retirement, without having to choose one over the other.
Opening a Lifetime ISA will work in the same way as opening any other ISA, as will saving into one. Individuals will also be able to transfer their Lifetime ISA in line with the existing ISA rules.
There will however be some additional rules to consider:
- Individuals will be able to contribute into a Lifetime ISA and receive the 25% Government bonus up to the age of 50.
- The Government Bonus will be paid on contributions of up to £4,000 per year. This is essentially £1 from the Government for every £4 the individual invests.
- Individuals will be able to transfer funds from other ISA’s as a way of funding their Lifetime ISA.
- Where people choose to withdraw savings from the Lifetime ISA to make a first home purchase, they will be able to withdraw up to 100% of their balance including the Government bonus. Their withdrawal can be put towards a first home located in the UK with a purchase value of up to £450,000. There will be an initial holding period of 12 months from the account opening before withdrawals can be made for a home purchase.
Whilst the purpose of the Lifetime ISA is to encourage long term saving for buying a home or saving for retirement, the Government have also stated that they want to ensure that people can access their money for any other purposes. This will however incur a 5% charge.