This Spring Budget was never going to be very eventful. There will be another full Budget in the autumn 2017 which gives the Chancellor a second chance to innovate once Brexit is underway.

Having said that, there are some very important tax changes in the pipeline, particularly for business and property owners. 

Headline items

HMRC plans to ‘make tax digital’ over the next few years, with the original timescale being April 2018 for individuals and small businesses with rental income or trading turnover over £10,000 per year. Philip Hammond has now announced a reprieve for those with turnover below £85,000 who will get another year to become digitally compliant, starting in April 2019.

Rental and trading businesses with turnover over £85,000 will however still have to submit quarterly reports to HMRC from 2018 onwards.

National Insurance Contributions (NIC) for the self-employed are set to increase. When flat-rate Class 2 NIC ends in 2018, profit-related Class 4 NIC rates will increase by 1% to 10%, with a further increase to 11% in 2019. NIC is a UK tax, so the Class 4 upper profit limit will rise in future with the UK higher rate tax threshold. 

However, following considerable opposition raised about the proposed Class 4 NIC increases, the Chancellor announced on 15 March not to proceed with the measures announced in his Budget or indeed for the rest of this Parliament.

The Scottish divergence

Scottish taxpayers have to consider not just UK tax thresholds but also their Scottish income tax position. From 2017/18, those north of the border will pay the higher income tax rate of 40% on their earned and rental income above £43,000, rather than £45,000 as in the rest of the UK.

UK tax rates and thresholds will still apply to savings and dividend income after 2017/18. Capital Gains Tax (CGT) and Inheritance Tax (IHT) also remain UK taxes, as does corporation tax which is to reduce to a historic low of 17% from April 2020.

A surprising U-turn

Perhaps the most surprising change in the whole Budget was the cut in the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018. This allowance (not really an allowance but actually a 0% tax band) was only introduced in April 2016 when dividend taxation was radically overhauled.

Reducing the dividend allowance will not just affect the Chancellor’s target market of owner-managed companies. It will also significantly increase taxes for investors with large taxable dividend incomes, particularly additional rate taxpayers with incomes over £150,000. 

Other key points

The individual CGT annual exemption increases to £11,300 for 2017/18, up from £11,100 in 2016/17. Taken together with the increased Individual Savings Account (ISA) limit of £20,000 for 2017/18, investors now have greater scope to rebalance their investment portfolios between taxable and tax-free elements.

Pensions emerged relatively unscathed from the Budget, although there will be some changes to overseas pensions arrangements.

Major changes to the non-domicile rule come into force from April 2017, with UK residential property held by an overseas entity brought within the UK IHT net for the first time.

It will be interesting to see what Philip Hammond does next. We expect to see a number of consultation documents over the summer and will provide updates on these as required.

Visit our Budget Hub

Our team have analysed the Spring Budget 2017 closely, creating a useful summary of the headline points and how these might affect you or your business. You can download a copy of our Budget 2017 Briefing in our dedicated Budget Hub here.