The Budget 2016: Crowd2Fund's Response
17th March 2016
Yesterday Chancellor George Osborne delivered his eighth budget as Chancellor. Whilst this resulted in GDP growth figures for the next year being reduced, due to macro economic factors, from 2.4% to 2%, a number of measures were introduced which are likely to benefit businesses and investors.
You can also listen to Crowd2Fund’s latest podcast about the 2016 budget here.
The personal allowance, due to rise to £11,000 in the 2016/17 tax year, will increase by an additional £500 to £11,500 in April 2017. This is a move towards the Chancellor’s parliamentary goal of individuals not having to pay any tax on the first £15,000 they earn.
Higher Rate Tax Threshold
The higher rate tax threshold, £43,000 in 2016/17 will rise to £45,000 in April 2017. This will result in removing around 500,000 people out of the higher rate tax bracket altogether.
The cumulative effect of these two changes is that investors will have more disposable income, which they can use to invest and save for their future.
Capital Gains Reduction
Capital gains tax will be reduced from 28% to 20% for higher rate earners, and from 18% to 10% for basic rate earners. This is likely to encourage investors to put capital into more high growth vehicles thanks to a smaller tax bill at the time of the sale.
This will not affect our investors who make qualifying investments into SEIS and EIS businesses, as their qualifying capital gains exemptions will continue.
From April 2017 the annual ISA limit will be raised from its current base of £15,240 to £20,000.
In addition to this, a Lifetime ISA will be introduced, which is specifically aimed at helping young people save. This will allow savers and investors to put away up to £4,000 a year which will result in the Government topping this up by up to £1,000. In order to open this, savers and investors will have to be under the age of 40, and will be able to invest in it until they are 50. Participants will be able to draw out funds tax-free when they want to buy a home or reach the age of 60. Those wanting to take money out for non-qualifying life events may be charged 5%.
As of 5th of April 2016 investors will be able to open an Innovative Finance ISA and invest in peer-to-peer loans on a handful of platforms including Crowd2Fund. Due to interest rates being so low and stock ISAs possibly being too risky for certain individuals, we think that the Innovative Finance ISA will present a compelling opportunity to engage new and existing investors to receive annual returns of up to 9%.
In due course, it will be interesting to see whether the Lifetime ISA can operate alongside the Innovative Finance ISA.
Corporation Tax, currently 20%, will be reduced to 17% from April 2020. This will give the UK one of the lowest rates of taxation in the Western World, and is likely to encourage people to start businesses and create jobs.
Business Rate Relief Reform
In a move which signals the rebalancing of the economy to a digital age, the tax threshold for small businesses will more than double to £15,000 in April 2017, from a current base of £6,000. This will relieve up to 600,000 UK business of having to pay this tax altogether.
Class 2 National Insurance Contributions
Self-employed workers will cumulatively save £350 million a year by no longer having to pay Class 2 National Insurance contributions from April 2018. Whilst their current value, at £2.80 as week, is relatively small, this will result in less red tape and is likely to encourage more people to become self-employed and start their own businesses.
Micropreneur Tax Reliefs
From April 2017 two new tax breaks will be introduced for micropreneurs. These changes are intended to boost people who make small amounts of money online. The two new £1,000 allowances, one for property rental and the other for trading income from goods and services, will allow individuals to not pay any tax up to this amount on qualifying trade.
These two new reliefs act as a strong signal that the sharing economy is becoming mainstream. Whilst the two reliefs are unlikely to make a material difference to the take-home money of individuals, their introduction is likely to foster the appetite for individuals to become self-employed and start their own businesses.
Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.