Personal tax update

Published: Wednesday 16 March 2016

Not a huge amount of change in the Budget relating to general personal tax matters which is not necessarily a surprise given the revolutionary changes to dividends and saving rates announced in the 2015 Summer Budget.

The government previously committed to raising the personal allowance to £12,500 over this parliament and they made a move in this direction in the 2016 Budget by increasing it to £11,500 for 2017/18. The personal allowance was already set to rise to £11,000 for 2016/17 and that is still the case.  

In addition the Chancellor has reiterated his wish to remove more people from the higher rate tax band.  The higher rate band will increase from £32,000 in 2016/17 to £33,500 in 2017/18.  This taken with the personal allowance rising will mean that in 2017/18 an individual will be able to earn £45,000 without paying higher rate tax.  This is set to benefit 28.9 million individual taxpayers.

For the self-employed the announcement of the withdrawal of Class 2 National Insurance contributions will have been welcome. This will have effect from April 2018 and will save individuals that currently pay these contributions approximately £150 per year.

The most exciting announcement on income tax was the introduction of two new allowances.  There will be a £1,000 allowance for trading income and another £1,000 for property income.  This will mean that individuals with property or trading income below £1,000 will not need to submit tax returns. The aim is for fewer people to need to be in the system ahead of tax ‘going digital’.

Individuals with trading or property income over £1,000 will have the choice of calculating their profits in the normal way (deducting the relevant expenses) or simply knocking off the allowance in the same way as under rent a room relief.