We have cut through the swathes of Budget 2016 articles to bring you a short update on the matters that are most likely to impact doctors and dentists.
The Big News: ISAs
The big news is the ISA allowance increase to £20,000 from 2017. The news is even better for the under 40 year olds…unfortunately a distant memory for me!
A new Lifetime ISA will be introduced in April 2017. Contributions of up to £4,000 a year until age 50 will get a 25% bonus, provided funds are used to purchase a first home or are withdrawn after age 60. Whilst it’s positive news for younger savers, the pessimists amongst us may see this as laying the foundation for more cuts to the traditional pension regime further down the line.
From the 6th April 2016, you will be able to dip into your cash ISA and replace the money in the same tax year, without it affecting your annual subscription limit.
The Good News: Pensions
The good news in the world of pensions is that there are no major changes that we didn’t already know about. There is a view in the media that George didn’t wish to upset too many people with an EU referendum around the corner.
The Good News: Tax
There’s also good news if you have incorporated (ie become a Limited Company). Corporation tax is being reduced to 17% by April 2020.
This, in conjunction with the new rules on dividend tax, may well change how incorporated doctors and dentists draw money from their business.
The Government has an overall objective to raise the personal allowance to £12,500, and the higher rate tax threshold to £50,000, by the end of this Parliament. In an endeavour to achieve this, the 2016 Budget included the announcement that the:
- Personal allowance for 2017/18 will increase to £11,500
- Basic rate tax limit will increase to £33,500, giving a higher rate tax threshold of £45,000.
Capital gains tax (CGT)
Capital gains tax is being cut to 10% for basic rate tax payers and 20% for higher and additional rate tax payers from the 6th April 2016. These reduced rates only apply to capital gains in excess of £11,100 (your tax free personal CGT allowance, regardless of what tax bracket you fall into).
But, and it is a big but, for those looking to sell their second home or rented out property, the current higher CGT rates still apply: 20% for basic rate tax payers and 28% for higher and additional rate tax payers. This adds yet another nail in the coffin for rental property owners, and continues the Government’s theme of making rental property a less attractive investment vehicle.
The Bad News: Tax
Landlord tax relief
Currently, individual landlords can deduct their costs (including mortgage interest) from their profits before they pay tax, giving them an advantage over other home buyers. Wealthier landlords receive tax relief at 40% and 45%.
By April 2020, this landlord tax relief will be restricted to 20% for all individuals.
What’s more, as of the 6th April 2016, the current ‘wear and tear allowance’ will be more stringent. At the moment, landlords can reduce the tax they pay using the wear and tear allowance, regardless of whether or not they replace furnishings in their property. From April 2016, landlords will only be able to claim tax relief when they actually replace furnishings.
What’s the overall impact of Budget 2016 on doctors and dentists?
We were expecting worse from this year’s Budget. It may still come in the future but, at this point in time, I think there are a lot of people breathing a sigh of relief.
Do any of the changes announced in the 2016 Budget alter your pension, savings and/or investment plans? Let us know by adding a comment below.