Stealth taxes that will hit you in 2016: from Stamp Duty and Council Tax to dividends and pension tax relief
There are plenty of ways that the Treasury will swell its coffers in 2016.
Chancellor George Osborne may have scrapped the planned tax credit cuts in the Autumn Statement but there are a raft of stealth taxes on the way over the next couple of years.
The Government has been forced to find new ways to raise public funds after banning increases to income tax, national insurance and VAT.
The Office for Budget Responsibility (OBR) has worked out how much the new stealth taxes will collectively cost us.
Which changes will affect you?
Stamp Duty on second homes and buy-to-let
OBR estimate: £3.8 billion
Landlords were dealt a blow in the Autumn Statement when Osborne announced an extra Stamp Duty charge on people buying second homes or buy-to-let properties.
From April 2016, investors will have to pay a 3% surcharge on each Stamp Duty band.
The thinking is that the extra Stamp Duty bill will stop landlords outbidding owner-occupiers for properties.
However, it might not just be landlords facing extra costs – industry insiders have warned that the tax charge might be passed on to tenants in the form of higher rents.
The Stamp Duty hike could lead to new housing developments stalling as many new builds are bought by landlords.
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Council Tax
OBR estimate: £6.2 billion
Local councils are already allowed to put up Council Tax bills by 2% a year, but Osborne said in the Autumn Statement they can now hike bills by 4%. The extra 2% will be ringfenced by the council to fund social care.
Annual 4% Council Tax hikes could see the average bill for a Band D household rise by up to £320 by 2020-21.
Tax on dividends
OBR estimate: £6.8 billion
Reforms to the way dividends are taxed are set to hit some investors and small business owners from 6 April 2016.
Currently, basic-rate taxpayers effectively pay no tax on their dividend income, while higher-rate taxpayers pay an effective rate of 25% and additional-rate taxpayers pay 30.56%.
That means that at the moment taxpayers in all bands pay less than they would on earned income. This is because dividends are paid out of company profits, on which corporation tax has already been levied.
From 6 April 2016 the first £5,000 of dividend income in each tax year will be tax-free. This is good news for small investors but large investors and business owners will pay more tax.
After the £5,000 tax-free band, basic rate taxpayers will pay 7.5% tax on dividends, higher-rate taxpayers will pay 32.5% and those who pay 45% tax will pay 38.1%.
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Pensions tax relief
OBR estimate: £4 billion
High earners saving large amounts into pensions will lose some of their tax relief from April 2016.
A maximum of £40,000 can be saved in a pension tax-free each year. But from April workers earning more than £150,000 a year will see the annual tax-free allowance gradually fall as their income increases.
At £160,000, the allowance will fall to £35,000, then gradually decrease to £25,000 at £180,000 and just £10,000 for those earning £210,000 or more.
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