Budget 2016: Personal taxes

Tax cut for workers, though Scots may not benefit

Income tax own picInvestors, the self-employed and middle income earners were the big winners from a raft of individual tax changes.

The number of people paying higher rate tax has increased in recent years following a freeze in the threshold at which the 40% rate kicked in.

That process is now being reversed. The threshold will increase from £42,385 to £43,000 next month, under a measure set out in the emergency Budget last July.

The chancellor has now announced that it will jump to £45,000 in April 2017, taking it closer to his target of £50,000 by 2020. There will be 585,000 fewer higher rate taxpayers than at the start of the parliament as a result of the increase, the government claims.

The tax-free personal allowance will also go up again, from £11,000 in 2016-17 to £11,500 in 2017-18.

But the main beneficiaries of further increases to personal tax allowances are now the wealthiest taxpayers, according to the Institute for Public Policy Research (IPPR).

Catherine Colebrook, its chief economist, said: “We estimate that the poorest 10 per cent will see no change in their incomes, while the richest 10 per cent of families will see their incomes rise by almost £200 a year.

“Just as importantly, this move will cost an eye-watering £2.5bn a year by 2020-21. In a budget where government departments have been cut, and deep cuts to disability benefits have been made, this looks like a poor use of extremely limited resources.”

The 2017 changes may not be passed onto taxpayers in Scotland, due to the expansion of tax powers north of the Border from next April.

“Today’s Budget announcements effectively started the opening gambit in the competition between Scotland and the rest of the UK on income tax,” said Stephen Hay, Head of tax at RSM in Scotland.

“The game has begun, and the Chancellor has made the first move with increases in the personal allowance to £11,500 and higher rate threshold of £45,000 from April 2017. The question is, will the Scottish Government step up to the challenge and meet or better it? It’s Scotland’s move.”

There are significant cuts to capital gains tax too, taking effect in just three weeks time. The top and the basic rates will fall from 28 and 18% to 20 and 10 per cent respectively on 6 April. The rates for gains on residential property investments won’t change, however, while the proceeds of main home sales remain outside CGT.

The CGT cuts will take effect alongside the previously announced introduction of new personal savings and dividend allowances.

There’s good news too for self-employed workers, with the scrapping of Class 2 national insurance contributions that some 3.4 million people currently pay at a rate of £2.80 a week.

Leave a Reply

Your email address will not be published. Required fields are marked as *

This site uses Akismet to reduce spam. Learn how your comment data is processed.