The buzz-phrases used by Chancellor George Osborne included “act now, not pay later” and “A Budget for the next generation”. To a degree he wasn’t wrong, with the introduction of a new Sugar tax to tackle childhood obesity and the re-branding of UK schools as “Academy’s “, but did he deal with the big issues facing SME’s and individuals, the “backbone” of the UK economy?
In review, let’s look at some of the changes and see how they may affect you and your business:-
- The rate of corporation will be cut to 17% in April 2020
Our view: on the face of it, this will encourage UK businesses to generate more profit, but with the new dividend tax rules starting from April 2016, 2020 seems quite way off. It may be seen as a way to soften the blow of the well publicised dividend tax rules. Also it is widely seen that Corporation Tax is the most subjective tax to measure.
- Capital Gains Tax rates will be cut from 6 April 2016, but residential property will still be taxed at current rates. From April 2016, the higher rate of Capital Gains Tax will be cut from 28% to 20% and the basic rate from 18% to 10%. There will be an additional 8 percentage point surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers).
Our View: This is a good headline move for the Chancellor, but as most capital gains relate to property, we feel this is designed just to stop the flow of property investors who are over inflating the current housing market values. Apart from properties and share sales that don’t attract entrepreneurs relief, we are not entirely sure how many will truly help the working population.
- New stamp duty rates for commercial property from 17 March 2016. The way stamp duty on freehold commercial property and leasehold premium transactions is calculated will change. Currently, these rates apply to the whole transaction value. From 17 March 2016 the rates will apply to the value of the property over each tax band. The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000. Buyers of commercial property worth up to £1.05 million will pay less in stamp duty. Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million.
Our view:- This is beneficial to SME’s as they now have an exemption band on their lease premiums which will be covered by larger firms, with the introduction of the 2% band for firms with a rental NPV of £5 million plus.
- Cutting business rates for all rate payers. From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. Currently, this 100% relief is available if you’re a business that occupies a property (e.g. a shop or office) with a value of £6,000 or less. There will be a tapered rate of relief on properties worth up to £15,000. This means that 600,000 businesses will pay no rates.
Our View: We have seen a shift in the way the high street is structured in recent years. Shops and businesses are finding it more difficult to compete against on-line retailers. This should have a positive effect on the UK’s high street and for our hard working SME’s.
- New tax allowances for money earned from the sharing economy. From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one income from property you own. People who make up to £1,000 from occasional jobs – such as sharing power tools, providing a lift share or selling goods they have made – will no longer need to pay tax on that income. In the same way, the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free.
Our View: This is designed to provide a relief for the “Ebay” and “Air bnb” generation. Individuals will not have to be concerned if their have sold a few items on Ebay or have generated a small amount on income on their property. The new changes have called many to ask if this new allowance affects the Rent –A-Room scheme? The rent-a-room scheme already allows home owners to earn £4,250 tax-free from both long and short-term rentals and the allowance increases to £7,500 next month.
- The Personal Allowance will increase to £11,500, and the higher rate threshold will rise to £45,000 in April 2017. The Personal Allowance is the amount of income you can earn before you start paying Income Tax. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017. The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.
Our View: This was always the cards and no major surprise. With increased in NIC over the few years and the new dividend tax approaching, the overall affect is fairly small.
- Lifetime ISA: a new £4,000 ISA that you can use to save for retirement or to buy your first home. From April 2017, any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year and savers will receive a 25% bonus from the government on this money. Money put into this account can be saved until you are over 60 and used as retirement income, or you can withdraw it to help buy your first home. The total amount you can save each year into all ISAs will also be increased from £15,240 to £20,000 from April 2017.
Our View This is designed to assist individuals to save, as you can create a tangible return which can be utilised throughout your life to purchase a house or for your retirement. At the moment, unless you have a terminal illness, you will be charged 5% if you take the funds and use them for anything else than purchasing a property. The Treasury says it will consider whether money saved into a lifetime ISA and the government bonus can be withdrawn in full for other specific life events.
Should you have any additional questions please do not hesitate to contact a member of the WHA team.