The Chancellor has presented a packed March Budget bursting at its seams with measures impacting businesses and individuals alike. (See also our UK Budget coverage with commentary by our tax experts.)
The first reference to tax in his statement was to "tax avoidance" and that tells its own story. With the "tax lock" in place and fiscal deficit being what it is, he has focused on targeting (real or perceived) tax avoidance to ensure that the tax revenue increases without a corresponding increase in the tax rates.
The Chancellor has gone one step further than anticipated – he has actually announced the reduction of corporation tax to 17% come 2020 whilst also introducing a raft of tax revenue raising rules (most notably deciding to impose cap on interest deductibility by reference to EBIDTA) all which are intended to target large multinational businesses. This is an intricate balancing exercise admittedly but runs the risk of derailing his endeavours to make the UK one of the most competitive corporate tax jurisdictions in the G20.
The big "rabbit out of the hat" announcement this year which was not anticipated is the reduction of the capital gains tax rate from 28%/18% to 20%/10%. This goes against market expectations that the Chancellor may look to raise the capital gains tax rate at some point during the term of this Parliament. This is incredibly good media management by the Treasury as no one had predicted this. It is worth noting that the effective capital gains tax rate for residential real estate and carried interest will continue to be the 28%/18% rate.
It appears that the Chancellor has recognised that the residential real estate sector in the UK can only be milked so far for taxes. He has now shifted focus to commercial real estate – showing signs of confidence in the UK real estate sector. The stamp duty land tax rates for commercial real estate will now be on a "sliced basis" similar to residential real estate and commercial property over and above £250,000 will now give attract a 5% stamp duty land tax charge. The Chancellor has also announced a new 2% NPV stamp duty land tax for leasehold commercial real estate over £5m. Finally, any kind of tax planning involving overseas property developers will now become extremely difficult as targeted anti-avoidance rules have been announced in this area.
Overall it was an eventful budget and there are essentially two key takeaways – one, the UK will relentlessly stayed focused on lower corporate tax rates but balance that with more revenue raising and tax avoidance rules whereby, magically, lower corporate tax rates will nevertheless result in higher corporate tax revenues and secondly, the pre-election giveaways have started somewhat pre-maturely with the capital gains tax rates being reduced – this appears to be a pre-cursor to the inevitable reduction of the higher rate of income tax at some point over the course of this Parliament.