George’s giveaway budget

Posted in News on 20 Mar 2016

George’s giveaway budget


Last week’s Budget was, to say the least, extraordinary. In the run up to George Osborne’s speech the usual rumours were rife, with a key prediction being changes to the pension rules, including the withdrawal of the tax free 25% lump sum on “retirement” and the restriction of tax relief on contributions to basic rate. A formal announcement was made, in advance, about plans to streamline welfare spending with a view to saving £4.4 billion over the life of the parliament.  The Chancellor made a U-turn on the former before the Budget and has been forced to make another one on the latter subsequently! However the good news is that he appears to have retained all of the giveaways – quite surprising in view of the economic uncertainties at both home and abroad. So let’s look at a few of the changes which could be particularly relevant to lawyers:

Capital Gains Tax Rates will reduce by 8% for disposals made from 6 April 2016 – now 10% for basic rate taxpayers and 20% for those who are higher and additional rate payers. Residential properties are excluded. This was totally unexpected and it is difficult to see what behaviour the Chancellor is trying to influence!

A new Investors CGT Entrepreneurs Relief will apply from 6 April 2016 – this is for holders of new issues of shares in unlisted trading companies, who are not employees or directors. If they retain the shares for at least 3 years they will only pay 10% tax on the gains. Previously, only those who were employees or officers and held a minimum of 5% of the company for 12 months, qualified for this relief.

A new Lifetime Individual Savings Account (LISA) is to be introduced from April 2017. This is available to individuals under 40, who will be able to save up to £4,000 a year and the government will provide a 25% bonus on contributions made until the individual is 50. Income and gains within the LISA will be tax free. Funds can be withdrawn from the LISA, without penalties or charges, for specific “life events” including purchasing a first home, or after the individual has turned 60. Although this is a welcome innovation, is it perhaps a precursor to fundamental pension reform? It looks very much like the vision for pension schemes which the Chancellor has previously articulated!

Stamp Duty Land Tax for commercial property has been reformed, with effect from Budget Day, so that, like residential properties, the rates are banded instead of the old “slab” system. Accordingly, under the new system, where the consideration exceeds the threshold, only the excess will be subject to the higher rate of SDLT not the whole amount, as was previously the case.

Personal Allowances have increased from £10,600 to £11,000 for 2016/17 and the income level above which higher rate tax of 40% is paid increases from £42,385 to £43,000. Further increases are planned from April 2018.

Corporation Tax paid by companies (currently 20%)  is planned to reduce to 17% by April 2020

The rateable value threshold for small business rates relief, below which no charge is made, has doubled from £6,000 to £12,000 with some relief above this figure.

Of course it’s not all good news:

Anti - “phoenix-ism” rules, effective from 6 April 2016, will seek to combat the practice of winding up one company and immediately starting another operating a similar business in order to extract funds as capital distributions (often qualifying for Entrepreneurs Relief). In future, such distributions will be treated as income taxable at the individual’s marginal rate which could be as much as 38%. Not unexpectedly, there has been a rush to dissolve such companies and extract the funds before the end of this tax year!

As announced in the Autumn Statement, a higher rate of Stamp Duty Land Tax applies from 1 April 2016 in respect of Buy2Let properties and second homes. The new rates are 3% higher in most cases.

Obviously the above is only a brief summary of some of the provisions in the Budget and the devil is often in the detail. Before taking any action we would always recommend seeking advice from your accountant and/or financial advisor.

Andrew Alder

Partner, Saffery Champness Chartered Accountants

Saffery Champness is one of the UK's Top 20 accountancy practices, with a network of nine offices in the UK, plus offices in Guernsey, Geneva and Zurich

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