In a bid to incentivise savings and investing, the Chancellor introduced a significant cut in capital gains tax effective as from 6th April 2016. The basic rate of capital gains tax has fallen from 18% to 10% this year, while the higher rate has fallen from 28% to 20%. The changes mean that the UK now charges some of the lowest rates of capital gains tax in Europe. Investors should now reconsider the balance of their portfolios, especially with the new dividend taxation regime which also came into effect at the beginning of the tax year. A change in focus from income-producing to growth-orientated shares could lead to paying less tax.
The new capital gains rates will also apply to gains made on commercial property but for those invested in residential property they will fail to benefit from the newly lowered rates. Instead the existing rates will be maintained for gains made on residential property equivalent to an eight percentage point surcharge. The existing rates will also be applied to ‘carried interest’ in private equity funds.
PLUS Reminder of other tax changes effective from this current tax year
We would urge clients to view our website and the blogs posted with regard to the numerous tax changes effective from April 2016. However here is a reminder of those changes.
INCOME TAX AND NI CONTRIBUTIONS
The tax free personal allowance increased to £11,000 but for those with incomes in excess of £100,000 this will continue to be progressively withdrawn, at the rate of £1 for every £2 above £100,000 you earn. This means that if you earn £122,000 or more (2016-17) you receive no personal allowance and all your income is taxed.
The higher rate threshold has also increased to £43,000.
The marriage allowance increased to £1,100. To benefit, you need to have an income of £11,000 (the new personal allowance) or less and your partner must be a basic-rate taxpayer whose income is between £11,001 and £43,000. The whole of the allowance must be transferred.
For self-employed making Class 2 NICs these will be paid through self-assessment.
TAX EFFECTING PROPERTY AND PROPERTY INCOME
Stamp duty land tax – 3% surcharge on existing price bands for landlords and those purchasing additional property unless you are replacing your home.
10% wear and tear allowance no longer available and you will only be able to claim for maintenance costs actually incurred.
Individuals with taxable income of between £17,000 and £43,000 a year will be eligible for a £1,000 tax-free allowance, meaning they can earn up to £1,000 per year in savings income without paying tax. Higher-rate taxpayers who have taxable income of between £43,001 and £150,000 will also receive an allowance, but it is capped at the lower amount of £500 per year.
Dividend tax credit rules have been replaced with a tax-free allowance which entitles all individuals to the first £5,000 of income from dividends each tax year free from taxation. Dividends over this level will be subject to tax and for basic-rate taxpayers this will be 7.5 per cent, higher-rate taxpayers will pay 32.5 per cent and additional-rate taxpayers will pay 38.1 per cent.