The Budget 2016, What Does it Mean for Employees?

The Budget 2016, What Does it Mean for Employees?

What The 2016 Budget Means For Employees

Employees can look forward to keeping more of their income after changes to the income tax thresholds were announced in the 2016 Budget.

The personal allowance – the amount of earnings on which no income tax is paid, will rise to £11,500 in April 2017. It will be £11,000 for the tax year April 2016 to April 2017.
The higher rate threshold – the point at which income tax reverts to 40%, will rise from the current level of £42,385 to £45,000 by April 2017.

Employees who supplement their income via online trading or property rental received a major boost. The Government has created two new allowances of £1,000 per year – one for renting out rooms, driveways, storage space etc. at home; and one for ‘occasional jobs’, which encompasses babysitting, online trading etc. Employees will not have to declare the first £1,000 of income from these two areas.

The speech also contained a number of measures designed to boost savings. The headline Individual Savings Account (ISA) contribution limit is to rise from the current level of £15,240 to £20,000 in April 2017.

A new Lifetime ISA will be introduced in April 2017, when those aged between 18 and 39 will be able to contribute up to £4,000 per tax year and receive a Government bonus of 25% of the amount contributed. This bonus will not apply once the saver has passed the age of 50. The proceeds can then be used either to purchase a home, or to save for retirement. Hence if the funds are withdrawn before age 60, and not used to buy a home, the Government bonus will be lost, and a withdrawal penalty will be charged.

No changes were made to pensions tax relief, so employee contributions to personal pensions are still paid net of income tax at 20%, with higher and additional rate taxpayers required to claim additional tax relief via their tax return.

Another new savings scheme was launched for low paid workers. Under Help To Save, the 3.5 million workers who receive in-work benefits, such as universal credit or tax credit, will be able to save £50 per month and receive a Government bonus of 50% of their savings, i.e. £600, after two years. If they maintain the savings habit, then another £600 bonus could be payable after another two years.

Finally, the latest forecast from the Office for Budget Responsibility is for one million more jobs to be created by 2020.

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