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Family Law Week’s Budget Briefing: March 2017

Suzanne Cobourne of Creaseys Chartered Accountants and tax advisers explains the Budget changes of most relevance to family lawyers.

Suzanne Cobourne, Creaseys Accountants

Philip Hammond delivered his first, and supposedly the last, Budget as Chancellor.

Income Tax and National Insurance
The Chancellor announced that the tax-free personal allowance will rise for the seventh consecutive year to £11,500, reaffirming the Government's promise of a personal allowance set at £12,500 by 6 April 2019. 

As well as this, the higher rate band, where individuals begin to pay tax at 40%, will be extended by a further £2,000 to £45,000 from April 2017.

The abolition of Class 2 National Insurance Contributions (NICs), a flat rate charge for individuals who are self-employed, will remain in place as it is seen as both "regressive and outdated".  In contrast, the main rate of Class 4 NICs, paid on a self-employed individuals profits, is to gradually increase by 1% to 10% in April 2018 and then to 11% in April 2019.

There will be a reduction in the tax-free dividend allowance in an attempt to address a perceived unfair tax break for Director/Shareholders, reducing the allowance from £5,000 to £2,000 per year with effect from 6 April 2018.

Capital Gains Tax
There were no changes announced in respect of Capital Gains Tax, therefore the reduced rates given in the 2016 Budget of 10% for basic-rate taxpayers (down from 18%) and 20% for higher-rate taxpayers (down from 28%) remain. These lower rates, however, still do not apply to any gains realised on residential property and carried interest which continue to be chargeable at 18%/28%.

For Capital Gains Tax purposes, married couples and civil partners are still treated as separate individuals, meaning any transfers of assets between them are treated as "no gain/no loss" transfers.

If a couple is in the process of separation, any disposals made in the tax year of separation are also treated as a "no gain/no loss" transactions. However, in the subsequent years following separation, disposals are then deemed to be made at market value meaning transfers are chargeable to Capital Gains Tax. 

The Chancellor has introduced a new NS&I Investment Bond which will offer a rate of 2.2% over a term of three years.

It will be available for 12 months from April 2017 to everyone aged 16 and over. The bond will be subject to a maximum investment limit of £3,000 with a minimum investment of £100.

Business Rates
Business owners subject to business rates on their premises may be aware that the next revaluation comes into effect on 1 April 2017.

The Chancellor announced welcome measures to reduce the financial burden on those hardest hit by the revaluation including:

To recap, substantial reductions in business rates were announced in the 2016 Budget: the rate of Small Business Rate Relief was doubled, and thresholds of the relief extended to exclude thousands small businesses from payment of rates altogether.

Making Tax Digital ("MTD")
By 2020, HMRC want all taxpayers to move to a fully digital tax system. This means that by 2020, most businesses, self-employed individuals and landlords will be required to update HMRC at least quarterly via their digital tax account. These changes will be introduced for some businesses from April 2018, and will gradually be phased-in by 2020.

In response to concerns expressed by some business organisations, the government has decided to provide an extra year before MTD is mandated, until April 2019,  for unincorporated businesses and landlords with turnover below the VAT threshold (£83,000).