FOCUS ON FINANCE


Budget 2016: Highlights and Round-Up


On the 16th March 2016, George Osborne presented his budget speech. I’m sure many of you have observed the highlights through the press, some of you may not. For the purposes of this article I have noted some of the main areas that are likely to affect pharmacists.


Personal Allowance and Tax Bands For those born after 5th April 1938, the personal allowance will be increased by £400 to £11,000- effective from 6th April 2016.


At the other end of the earnings range, those with earnings over £100,000 will continue to lose their personal allowance at the rate of £1 for every £2 earned, creating an effective rate of tax of 60%.


The threshold for 40% tax will increase by only £615 to £43,000. The higher rate threshold will increase to £45,000 from 6th April 2017.


The first £5,000 of dividends will be tax free, however the balance of dividends for basic rate taxpayers will be taxed at 7.5% - previously zero - for higher rate taxpayers the rate will be 32.5%, also up 7.5%.


Many individuals do not have £5,000 of dividend income thus most basic rate taxpayers will be unaffected by this change and higher rate taxpayers with less than £5,000 of dividends will benefit from this change.


However, those individuals who operate their businesses as limited companies and extract their profits via dividends now will suffer more tax.


Lifetime ISA A new ‘Lifetime’ ISA will be available from April 2017 for adults under the age of 40 which is designed to allow flexible saving for first time buyers and those wishing to save for their retirement.


Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the Government. Funds, including the Government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.


Further details of the new account, which will be available from 2017, are as follows: • Any savings an individual puts into the account before their 50th birthday will receive an added 25% bonus from the Government; • There is no maximum monthly contribution and up to £4,000 a year can be saved into a Lifetime ISA;


• The savings and bonus can be used towards a deposit on a first home worth up to £450,000 across the country; • Accounts are limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together; •Where an individual already has a ‘Help to Buy’ ISA they will be able to transfer those savings into the Lifetime ISA in 2017, or continue saving into both. However only the bonus from one account can be used to buy a house; •Where the funds are withdrawn at any time before the account holder is aged 60 they will lose the Government bonus (and any interest or growth on this) and will also have to pay a 5% charge; • After the account holder’s 60th birthday they will be able to take all the savings tax-free.


Capital Gains Tax (CGT) Pre 6th April 2016 the CGT rates were 18% for basic rate taxpayers and 28% for higher rate taxpayers. From 6th April 2016 the Government has reduced the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%. The 28% and 18% rates will continue to apply for chargeable gains on residential property that do not qualify for private residence relief.


The rate for disposals qualifying for Entrepreneurs’ Relief remains at 10% with a lifetime limit of £10 million for each individual.


Goodwill on Incorporation and Entrepreneurs’ Relief (ER) New rules were introduced from 3rd December 2014 which prevent individuals from claiming ER on disposals of goodwill when they transfer their business to a related company in which they, or a member of their family, held any shares whatsoever.


This means that CGT became payable on the gain at the normal rates of 18% or 28% (10% and 20% from 6th April 2016) rather than 10%. Legislation will be introduced in the Finance Bill 2016 to allow ER to be claimed in respect of gains on goodwill where the individual holds less than 5% of the shares, and less than 5% of the voting power, in the acquiring company.


Relief will also be due where an individual holds 5% or more of the shares or voting power if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner.


This measure will be backdated so that it takes effect to disposals on or after 3rd December 2014, this may some individuals the opportunity to amend their 2014/15 tax return and possibly reclaim some tax.


Associated Disposals and ER New rules were introduced in 2015 which were aimed at combatting abuse of ER. Whilst preventing the abuse, those rules also resulted in relief not being due on ‘associated disposals’ when a business was sold to members of the claimant’s family under normal succession arrangements.


Certain revisions are to be made so that ER will be allowed on a disposal of a privately-held asset when the accompanying disposal of business assets is to a family member.


In addition, under the 2015 rules an associated disposal can only qualify for ER if there is also a material disposal of 5% or more of the claimant’s share in a partnership or holding in a company.


Under the proposals this is not to apply where the claimant disposes of the whole of his interest and has previously held a larger stake.


These changes will also have a backdated effect for associated disposals made on or after 18th March 2015.


External Investors and ER ER will be extended to external investors, i.e. those individuals who are not employees or officers of the company, in unlisted trading companies. To qualify for the 10%


CGT rate under ‘investors’ relief’ the following conditions will apply: • shares must be newly issued and subscribed for by the individual for new consideration; • be in an unlisted trading company, or an unlisted holding company of a trading group; • have been issued by the company on or after 17th March 2016 and have been held for a period of three years from 6th April 2016; • have been held continuously for a period of three years before disposal.


An individual’s qualifying gains for investors’ relief will be subject to a lifetime cap of £10 million.


SDLT on Commercial Property The Government has changed the calculation of SDLT on freehold and leasehold premium non-residential transactions, on and after 17th March 2016, so the rates apply to the portion of the purchase price within each band.


The SDLT rates and thresholds for commercial freehold and leasehold premiums will also change from the same date.


The rates and thresholds are as follows; 0% on the purchases up to £150,000, 2% on purchases between £150,001 and £250,000 and 5% on purchases above £250,000.


If any of the points noted above affect you or somebody you know please speak to Robert Barr for independent professional advice. n


For independent, professional advice, contact Robbie Barr on 028 9032 5050 or email robbie@muldoonaccountants.co.uk Muldoon & Co Chartered Accountants, 16 Mount Charles, Belfast BT7 1NZ.


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