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16th March 2016
A Budget with a Bit of Fizz

The Chancellor’s budget confirmed a number of widely held assumptions about the economic outlook both globally and here at home. In comparison to previous budgets, this year’s was expected to be slightly subdued in light of the looming EU referendum and tightening economic conditions. Fortunately, the Chancellor did manage to include a few surprises that will have a positive impact on investors.

In terms of the numbers, Mr Osborne conceded that he would not hit the debt to GDP target he had outlined at the start of the term but was now anticipating a higher budget surplus of £11bn in 2020/2021. Expected UK growth was revised down from 2.40% to 2.00% in 2016, which will still put the UK ahead of other developed nations, but serves as evidence of weaker global growth and slowing productivity.

For taxpayers, there were a number of welcome announcements. The personal allowance will continue to rise, hitting £11,500 in 2017/18. This was joined by an increase in the higher-rate threshold to £45,000, a combined saving of £500 for higher-rate taxpayers. The biggest tax change was reserved for capital gains tax, which will fall from 28% to 20% for higher-rate taxpayers and 18% to 10% for basic-rate taxpayers (although this does exclude residential property, which will still attract the current rates). This reduction will be available in the new tax year and offers a strong incentive to defer crystallising gains that would be liable for tax, or to use an investment such as an Enterprise Investment Scheme to defer gains already made. Class 2 National Insurance contributions for those who are self-employed will also be removed, a positive step towards simplifying an overly complex National Insurance system.

The Chancellor reinforced his stance on reducing taxation for small and medium businesses by cutting corporation tax in 2020/2021 from 18% to 17%. Business rates were also adjusted with a doubling in small business rate relief from £6,000 to £12,000.

In terms of savings, it was a mixed bag. Firstly, the Chancellor announced the Lifetime ISA which is available to those under 40 and will see the Government topping up £1 in every £4 deposited up to a maximum deposit of £4,000pa. However, you may only withdraw your savings tax-free after age 60; prior to this, you will lose the Government bonus and will have to pay a 5% charge. It is intended that the help to buy ISA is rolled into this new ISA, which will be available from April 2017. It does look suspiciously like the proposed Pension ISA and flat rate of pension tax relief which Mr Osborne was forced to shelve earlier in the year due to political pressure. Whether or not the Lifetime ISA is subsequently expanded to fit this remit, only time will tell. On the positive side, the ISA allowance will increase to £20,000pa, enabling couples to invest up to £40,000 a year in a tax-efficient manner from April 2017.

All things considered, Mr Osborne delivered a fairly robust budget; and – whilst the levy on sugary drinks undoubtedly claimed the headlines – we are pleased with a number of the announced changes. This being said, no mention of pensions or changes therein does give cause for concern, as we will inevitably have to pay for today’s generosity.