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Budget 2016 – an overview

Budget 2016 – an overview

Category: Economy

Updated: 17/03/2016
First Published: 16/03/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Well, George Osborne has just revealed the Budget for 2016 – his eighth so far as Chancellor – and as ever, there were some winners and losers from the whole thing. Below is a quick overview of the key points.

  • Rise to the personal allowance. Osborne announced that the tax-free personal allowance is to rise to £11,500 in April next year, and at the same time, the threshold at which people will pay 40% tax will rise from £42,385 to £45,000. This could bring 1.3m more people out of income tax altogether, said the Chancellor, and could result in substantial savings for both basic and higher rate taxpayers – potentially benefitting 31m workers.
  • Lifetime ISA. The announcement of a new savings vehicle was perhaps the most surprising feature of all, with it following news of the Help to Save scheme that was revealed earlier this week. The Lifetime ISA will be available to those aged under-40 and will allow them to save up to £4,000 per year, and in doing so they'll receive a 25% top-up from the Government. Savers can pay in until they're 50 years old and the money can be used towards a house deposit or for a pension – the latter requires the money to be held in the ISA until at least the age of 60, although it can be withdrawn earlier upon forfeit of the bonus and a 5% charge.
  • Annual ISA allowance to increase. In another savings-related move, the Chancellor announced that the ISA allowance will rise to £20,000 from next April, up from the current tax-free limit of £15,240.
  • Another rise to insurance premium tax (IPT). This one was largely expected by the industry, but happily the increase is smaller than was predicted, with the tax having seen a further 0.5% rise to bring it to 10%. This follows the rise previously implemented in November, which saw IPT rise from 6% to 9.5% (and has since sent the cost of insurance soaring), but to lessen the blow, the proceeds of the new increase are set to be diverted to flood relief.
  • There's slightly better news for businesses, with stamp duty for commercial properties being reformed in a similar manner to residential stamp duty: there'll be a 0% rate on purchases of up to £150,000, then 2% on next £100,000 and a 5% top rate on amounts above £250,000. The annual threshold for small business tax relief is also being raised from £6,000 to a maximum of £15,000 – which could exempt thousands of firms, says Osborne – and the headline rate of corporation tax will fall to 17% by 2020 (currently it's 20%).

Also announced in the Budget was the intention to turn all schools into academies by 2022, a so-called "sugar tax" on the soft drinks industry and stricter tax avoidance measures, while duty on fuel, beer, cider and spirits will be frozen, although it'll rise on tobacco products.

There were also announcements regarding transport, devolution plans and a tax cut for the oil and gas industry, but much of it will be overshadowed by the news that the disability living allowance is being cut, not to mention the fact that the GDP growth forecast has been dramatically downgraded.

Nonetheless, the fact that pensions haven't been further tampered with has been largely welcomed, while the benefits for savers and small businesses appear well founded. We'll bring you a more in-depth look at some of the most noteworthy changes – and how they could affect you – over the next few days.

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