There were a number of new (and, some surprising) announcements in today’s Budget. Highlights are listed below.
- Intellectual Property – withholding tax
The definition of ‘intellectual property rights’ for withholding tax purposes will be aligned with its definition in other tax statutes in order to bring all royalty payments paid to non-UK residents within the UK tax net. The measure will take effect from royal assent to Finance Act 2016.
Additional obligations will be introduced to deduct income tax at source from IP royalties paid to non UK residents in circumstances where contrived arrangements have been put in place by groups (typically large multi-national enterprises) that result in reducing or avoiding such tax. The changes will have effect for payments made under tax avoidance arrangements from 17 March 2016.
- Real Estate
Stamp Duty Land Tax (SDLT) on commercial property
The way SDLT is charged on commercial property transactions will change with effect from tomorrow. A new ‘slice’ system will apply in place of the current ‘slab’ system (as happened with SDLT on residential property in 2014). The rates will be 0% on the first £150k of consideration, 2% on the next £100k and 5% on any excess. The rate of tax payable on commercial leases will also increase from 1% to 2% for very high-value leases.
Increased rates for purchases of additional residential properties
As previously announced, SDLT rates for the purchase of second and additional homes (such as buy-to-let properties) will be increased with effect from 1 April 2016. The SDLT payable for each of the current thresholds will be increased by 3%.
- Capital Gains Tax
Entrepreneur’s Relief (ER)
The 10% rate of CGT (the ER rate) is currently only available to individuals who meet certain criteria (i.e. they are a director or employee of the trading company in which they are selling shares, they hold at least 5% of the shares and they meet both conditions for at least 12 months). The ER rate will, from 6 April 2016, also be available to any seller of shares in an unlisted trading company if they have held those shares for at least 3 years at the time of the disposal.
Reduction in CGT rates
With effect from 6 April 2016, the rate of CGT for basic rate taxpayers will be reduced from 18% to 10% and the rate for higher and additional rate taxpayers will be reduced from 28% to 20%. The reductions will not apply to chargeable gains accruing on the disposal of residential property which will remain taxable at current rates. This will not impact on disposals of homes that qualify for private residence relief as they are not taxable in any event, but it will impact on second homes.
- Corporation Tax (CT)
Reduction in rate
It has previously been announced that the main CT rate is to be reduced from 20% to 19% in April 2017. It is to be further reduced to 17% from April 2020.
Further targeted anti-avoidance rules will be introduced to prevent some of the tax planning techniques currently used by multinationals.
- Income Tax - personal allowance and tax band increases
From April 2017, the personal allowance will increase to £11,500 (up from the current allowance of £11,200). The basic rate limit (BRL) will increase to £33,500 (up from £32,400) and therefore the higher rate threshold (reached by adding the personal allowance to the BRL), at which individuals start to pay the higher rate of income tax, will be raised to £45,000 (up from £43,000).
In order to reduce unfair online competition from overseas businesses that fail to register and account for VAT in the UK, HMRC will have a new power to hold the marketplace, through which those overseas businesses make their sales, jointly and severally liable for the unpaid VAT.