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Budget Update and Comments

Our Budget Highlights

Experts at Everys Solicitors have reviewed the ‘nitty gritty’ of the budget so you don’t have to. Here’s our summary.

The big picture
UK economic growth is going to remain steady, and unlikely to exceed 2.1% a year for a considerable time.
It’s no surprise but more Government spending cuts, totalling £3.5bn, are on their way.
The downgrading of GDP estimates is disappointing, but not unexpected. Whilst international factors have impacted, relatively weak productivity is seen as key to this. Current uncertainty ahead of the Brexit vote on June 23 may also be influencing activity.
New restrictions on tax deductions for interest costs and tax relief on losses are expected to raise over £9bn for the Government in the next five years.
Overall, the Chancellor’s debt reduction targets for 2020 are widely seen as challenging, with his plans affected by weaker forecasts for wages and profits. 
‘Good news and bad news’ – savers and landlords
Avoidance of major reforms to the pensions market was welcomed and there’s good news for younger savers with the introduction of the Lifetime ISA for those under 40. Raising the existing ISA annual subscription limit to £20,000 also gives more flexibility for savers.
But there’s bad news for people and companies in the buy-to-let market, with a new 3% surcharge on each stamp duty band.
For properties worth between £125,000 and £250,000, where the stamp duty is 2%, buy-to-let landlords will pay 5%. And that’s an extra £5,520 from April 2016 for the average buy-to-let purchase of £184,000.
Commercial property investors, with more than 15 properties, are expected to be exempt.
Measures Introduced
Small business rate relief is to be permanently doubled from £6,000 to £15,000 and the threshold for the higher rate will increase. Corporation tax is to fall to 17% from April 2020.
Commercial property stamp duty will be reformed in the same way that residential stamp duty was previously changed.
The supplementary oil and gas charge on North Sea oil is to be halved to 10% and petroleum revenue tax effectively scrapped.
Insurance premium tax will increase to 10% (from the current 9.5%) with this extra 0.5% being used to improve flood defences.
Sugar, alcohol, cigarettes and fuel
The new sugar levy on soft drinks will be introduced in 2018 with some £520m being raised to help school sport.
Fuel duty is to be frozen for the sixth year in a row, whilst duty on tobacco and alcohol is increasing in line with inflation, except for beer, cider, whisky and other spirits, where it is frozen.
Number crunching – for individuals
The new lifetime ISA to help people save for a home and for their retirement will be available to anyone under 40. The Government will contribute £1 for every £4 saved, up to a limit of £1,000. The ISA can only be accessed to buy a first home or in retirement.
The wider limit for ISA savings is going up from £15,240 to £20,000 a year for everyone.
The tax-free personal allowance is to rise from £10,600 to £11,500 from April next year. This will remove 1.3m workers from income tax.
The 40% income tax threshold rises from £42,385 to £45,000 in April 2017, benefitting 500,000 people.
The rate of capital gains tax is to be cut from 28% to 20%. For basic rate taxpayers it will fall from 18% to 10%, except for “carried interest” and residential properties not qualifying for PPR relief and on ATED related chargeable gains (mainly companies). 
Corporates
The Government is introducing further measures to target multinationals that borrow abroad and deduct the interest bills against UK profits.
The tax deductibility of interest costs will be restricted to 30% of UK earnings by April 2017. This is expected to impact multinational companies and be disruptive for the private equity industry.
Economic Data and Forecasts
Growth forecast for this year is down from 2.4% to 2%, according to the Office for Budget Responsibility.
GDP is expected to grow by 2.2% next year, down from 2.5%, and by 2.1% in 2018, down from 2.4%. For 2019 and 2020 it is revised down from 2.3% to 2.1%.
Public sector debt was stated as 83.7% of GDP in 2015/16 and is forecast to decline to 74.7% of GDP by 2020/21.
The current account external imbalance is forecast to average 3.7% of GDP over the next five years, rather than the 2.4% previously forecast. 

For further information get in touch with Bill Keen of the Everys Investment Management Team 01404 541924 or email bill.keen@everys.co.uk

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