What George Osborne’s Budget means for you: Five case studies including an entrepreneur, an apprentice and a chief exec
Accountants from BDO ran the numbers for Morning Wire to see the effect George Osborne's 2016 Budget will have on people with a variety of different incomes, living situations and responsibilities.
THE BUSINESS WOMAN
Catherine Gannon, chief executive at Gannons Commercial Law
Gannons Commercial Law continues to perform well as profits and earnings increase on last year. Catherine is commercially savvy and has restructured the business from an LLP to a Limited Company due to the recent legislation covering LLPs. This shows that she is a smart operator in a segmented legal market place. Catherine lives with two children, aged 13 and 16, in a home with a mortgage and holds several investment properties.
BDO'S BUDGET TEAM SAYS:
Catherine is likely to benefit from the decrease in the higher capital gains tax rate from 28 per cent to 20 per cent, should she decide to sell her investments (excluding residential properties). The recent decision to incorporate her LLP into a company has proven to be a smart move on the basis that the corporation tax rate in the UK will decrease to 17 per cent in 2020. She may also benefit from longer school hours which have been funded for up to 25 per cent of secondary schools, which should make life easier for many when fitting the school run in around a demanding career.
THE APPRENTICE
Jack Crane, apprentice at PwC
Jack shares a flat in London and spends a fair amount of his £25,000 salary on rent – about £800 per month. Jack tries to save around £100 every month through a regular savings account. Jack pays around £150 per month into his pension through a salary sacrifice scheme, and PwC adds £230 to this. Jack likes to go out at the weekends, spending around £200 per month on this. As his salary rises over the next year, Jack is looking at higher interest savings accounts or a help-to-buy ISA.
BDO'S BUDGET TEAM SAYS:
Jack will benefit from the increase in personal allowance to £11,500 from April 2017, which means that more of his income will be tax free. As Jack’s salary rises, he will also start to benefit from the increase in the higher rate band. With a Lifetime ISA, he can save up to £4,000 a year and receive a 25 per cent bonus. If Jack pays his £100 savings per month into the new Lifetime ISA, he will get a bonus from the government of £300 for each year. Jack could also consider rolling his old Help-to-Buy ISA into his new Lifetime ISA. He will also be happy that there is a freeze on the beer and cider duties meaning his weekend nights out won’t cost more.
THE ENTREPRENEUR
Goncalo de Vasconcelos, founder and chief exec at SyndicateRoom
Goncalo, 35, has been in the early-stage finance industry for four years and chief exec of equity crowdfunding platform SyndicateRoom for three. He doesn’t take a pension and, judging by his early morning starts to fit two hours of tennis in before work, isn’t planning to slow down. He rents a house in Cambridge with his wife. He has passion for sailing, and hopes to travel the world with his wife one day. SyndicateRoom has had a successful year, and was named best investment platform at the Prestigious Growth Investment Awards.
BDO'S BUDGET TEAM SAYS:
With the introduction of the Lifetime ISA, Goncalo could save for his retirement and have the flexibility to use the cash to travel the world later in life. He would benefit from a £1 bonus for every £4 that he saved up to an annual maximum of £4,000 per year. If he was to receive another revenue stream from property, he would benefit from a £1,000 tax-free allowance. Another £1,000 tax-free allowance would apply for income from selling goods or services.
THE STARTUP FOUNDER
Oliver Pugh, founder and chief executive at Earlybird
Oliver’s business recently attracted £300,000 worth of investment via the crowdfunding platform Crowdcube, bringing its total equity investment since starting out last autumn to £600,000, which includes an earlier fund on Crowdcube and a private round of investment, worth £170,000. It is valued at £1.5m, and currently makes a five per cent gross profit on each product sold, which the company forecasts will rise to 37 per cent in the next year as production increases. Earlybird currently employs six people and looks to employ more. Oliver rents with his girlfriend in London. He drinks socially, but does not smoke. His savings have all been invested in Earlybird, and he takes a salary of £24,000 with no pension.
BDO'S BUDGET TEAM SAYS:
Oliver’s company, Earlybird, will benefit from the fall in the corporation tax rate to 17 per cent in 2020. But if losses are brought forward, it will only be able to utilise these up to a maximum of 50 per cent of current year profits, where these exceed £5m. If it decides to buy a commercial property for business use, it would benefit from the reduced stamp duty rates of zero per cent on the portion up to £150,000, two per cent between £150,001 and £250,000 and five per cent on an amount over £250,000.
THE FAMILY MAN
Martin Winter, partner at Taylor Wessing
Martin, 61, has a love for waterskiing shared by his son Freddie, 25. Freddie took his MBA final exams last November at the US university where he is on a water-ski scholarship. Martin lives with his son Freddie and wife Hilary in Wandsworth, where he owns his home outright. Martin mainly uses his car at weekends, and flies for business. Taylor Wessing’s profits per equity partner in 14/15 were sterling £767,000. Martin’s daughter continues to work in marketing.
BDO'S BUDGET TEAM SAYS:
Martin will benefit from the abolition of Class 2 National insurance from April 2018, which should save him £134 per year, based on current rates. He will also save £343 per year in tax following the increase in the higher rate tax band from £31,785 to £33,500 from April 2017, meaning more of his income will be taxed at 20 per cent not 40 per cent. He will have to pay a little more on his flights, with the Air Passenger Duty set to rise by RPI in both 2016/17 and 2017/18. However, fuel duty is frozen so the cost of driving shouldn’t increase for him.