A winter of discontent for savers

Chancellors presenting their Budgets often attempt to redistribute wealth from one group in society to another, stated a recent post-Budget Accountancy Age article, suggesting that this was the implicit rationale behind many of the corporate tax measures announced in the March 2016 Budget.

The business tax roadmap, published on March 16th, provided detail of how current and future business taxes would impact over the remainder of this parliament. Large companies, not necessarily all multinationals, saw an eventual reduction in the headline rate of corporation tax to 17% by 2020. We also saw that a concession to payments of corporation tax on account, for the two thousand or so very largest companies with profits over £20m, is to be deferred.

In addition, the chancellor announced the implementation of Base Erosion and Profit Shifting (BEPS) related actions in the restrictions on royalty payment deductions, and an effective interest relief restriction, to 30% of net interest expense, albeit with some exceptions and concessions. These moves to curb tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax areas by businesses, were expected.

There were changes on loss relief. Some will benefit from more flexibility but others will see restrictions to 50% of losses, for companies with profits in excess of £5m. According to AccountancyAge, hidden in the roadmap was also a reference to a review of the substantial shareholdings exemption – a valuable relief which shouldn’t be under threat.

Where is the ‘new cash’ going? Much is directed to small and micro businesses, who benefit from the reduction in the main rate of corporation tax too in due course. Permanently doubling the small business rate relief costs a whopping £1.5bn and with other changes to business rates, around 600,000 firms will benefit. Another change was around commercial stamp duty, although there’s a catch. Duty was cut in respect of purchases up to £150,000 to zero, with a 2% charge on the next £100,000 of value. But the charge has been increased over this threshold to a higher 5% charge.

These changes should help smaller businesses significantly, yet the concern is that as both of these reductions apply to landlords (if the landlord pays the business rates), there’s a risk these ‘benefits’ aren’t passed on through reduced rents.

And what about the ‘sofapreneurs’? A new £1,000 a year allowance for trading income generated by micro entrepreneurs, and a further £1,000 a year allowance for property income, will take away much complexity for those selling or renting via digital platforms, such as Airbnb. Overall, AccountancyAge believes that there is a shift from big to small, a signal perhaps to those who want to start out in business, to now get up and try.

The higher rate of Capital Gains Tax (CGT) will be cut from 28% to 20% this April. In addition, the basic rate of CGT will be cut from the current 18% rate to 10% at the start of the new tax year on 6 April. Budget documents show that the government estimates the changes to CGT will cost it more than £600m a year from 2017-18 onwards. However, the old higher rates will still apply to gains on the sale of a residential property that is not a main home (such as a second home or a buy-to-let property), and also to “carried interest”.

Commercial stamp duty will be overhauled with the introduction of a 0% rate on purchases up to £150,000, a 2% rate on the next £100,000 and a 5% top rate above £250,000. A new 2% rate for high-value leases with net present value above £5m will also take effect from today. The overhaul introduces a “slice” system, in which stamp duty is payable on the portion of each transaction that falls within the relevant price band. Large-scale professional landlords will also face a three percentage point stamp duty surcharge when buying rental properties, after George Osborne rejected proposals for an exemption for bigger investors.