We have set out below our initial thoughts on the key announcements in today’s Budget affecting private clients.
The most significant announcement today was the unexpected (and welcome) cut in CGT to 10 per cent (for basic rate tax payers) or 20 per cent for most chargeable gains.
We will be publishing a more detailed note shortly with our considered views on what impact the changes will have and what action should be taken.
Income tax rates and allowances
The personal allowance for the 2016/17 tax year had already been confirmed at £11,000. Today the Chancellor announced that this would rise to £11,500 in 2017/18. The higher rate threshold will be £43,000 in 2016/17 and £45,000 in 2017/18.
Two new £1,000 allowances for property and trading income will be introduced with effect from April 2017. These are principally intended to ease the compliance burden on those with small amounts of either type of income.
Reform of the taxation of non-domiciliaries – 2017 changes
As expected, there were no further detailed announcements in the Budget about the proposed changes to the taxation of non-domiciliaries who are long term UK residents and those who have a UK domicile of origin (so-called “returning UK doms”).
A response to the consultation held in Autumn 2015 was originally expected in January 2016 but has now been postponed until later this year.
There was, however, one piece of significant news on this topic. The budget materials included an announcement that assets held by non-UK domiciled individuals who become “deemed domiciled” under the new rules on 6 April 2017 will be upbased for capital gains tax purposes to their value on that date.
This had not been trailed previously. It should be a helpful measure and is likely to reduce the planning steps required for those affected (depending of course on the detail – which is not yet available).
Inheritance tax on UK residential properties owned through companies
There were no further announcements in respect of the proposal to charge inheritance tax on the value of UK residential properties owned by offshore companies with effect from 6 April 2017. A consultation is anticipated shortly.
Capital gains tax
Reduction in rates
For higher rate taxpayers, the capital gains tax rate will reduce from 28 per cent to 20 per cent for disposals on or after 6 April 2016 (and from 18 per cent to 10 per cent for basic rate taxpayers). The reduction does not, however, apply to gains on residential property or carried interest.
Those considering selling assets which will qualify for the new, lower rates may wish to wait until after 5 April before doing so.
Another welcome announcement was the introduction of a new extension of Entrepreneurs’ Relief.
Currently the relief applies to shares in private trading companies – but only in restricted circumstances (broadly speaking, where the selling shareholder is an officer or employee of the company and holds more than 5 per cent of the shares - and voting rights - in it). Where the relief is available a 10 per cent tax rate applies – up to a lifetime limit of £10m.
The extended relief will apply to disposals of shares in private trading companies by investors – without the requirement for the shareholder to be an employee or to meet the shareholding threshold. This will be subject to a lifetime limit of £10m.
It should be noted however that this relief will apply only to shares which are subscribed for on or after 17 March 2016. It will not apply to shares issued before that date; nor will it apply to existing shares which are purchased after that date (as opposed to newly subscribed for).
In addition, the shares must have been held for a minimum period of three years for the relief to apply.
The Chancellor also announced a number of other (largely beneficial) alterations to Entrepreneurs’ Relief which we will report on in our detailed note.
Pensions and savings
The Government has decided against making further changes to pension tax relief rules. However, the tapered reduction in the annual allowance for individuals with income of over £150,000 announced in the 2015 Summer Budget will take effect on 6 April 2016 (the allowance will be reduced by £1 for every £2 of income above £150,000 until it reaches £10,000).
The annual ISA subscription limit will be increased to £20,000 (from the current level of £15,240) on 6 April 2017.
From that date, adults aged under 40 will be also able to open a new "Lifetime ISA", into which they can contribute up to £4,000 a year until reaching the age of 50. The Government will add a 25 per cent bonus to any contributions. The Lifetime ISA must then be used either towards a deposit on a first home worth up to £450,000 or the funds can be withdrawn tax-free after reaching the age of 60, otherwise the bonus (and any interest or growth on this) will be clawed back and a 5 per cent charge will be levied. Contributions to a Lifetime ISA will count towards the annual ISA subscription limit.
Tax avoidance and evasion
The Government is continuing its drive to clamp down on all forms of tax evasion and aggressive tax planning and non-compliance.
The Finance Bill 2016 will introduce new measures dealing with "serial" tax avoiders who persistently enter into tax avoidance schemes that are defeated by HMRC. These will include a special reporting requirement and a penalty for those whose latest return is inaccurate due to use of a defeated scheme. Tax avoiders' names may be published, and those who persistently abuse reliefs may face restrictions on their access to certain tax reliefs for a period.
The Government is also strengthening the Promoters of Tax Avoidance Schemes regime by including promoters whose schemes are regularly defeated by HMRC.
The Government has confirmed its intention to introduce a new criminal offence to cover the most serious cases of failing to declare offshore income and gains, which will remove the need for prosecutors to prove an intention not to declare the income or gains.
The Government is also introducing new civil penalties for deliberate offshore tax evasion. This will include the introduction of a penalty linked to the value of assets on which tax is evaded, and a new emphasis on the public naming of tax evaders. Those who assist tax evaders will also face civil penalties, including public naming.
Looking further ahead, the Government has confirmed that in the Finance Bill 2017 it will introduce a new legal requirement to correct past offshore non-compliance within a defined period of time, and with new sanctions for those who fail to do so.
The general anti-abuse rule (GAAR)
The Government has confirmed that the Finance Bill 2016 will include provisions which introduce a penalty of 60 per cent of the tax due in all cases which are successfully tackled by the GAAR. Finance Bill 2016 will also make small changes to the existing GAAR legislation to increase the GAAR's effectiveness in dealing with marketed avoidance schemes.
Additional Stamp Duty Land Tax (SDLT) charge
The 2015 Autumn Statement announced that a 3 per cent SDLT surcharge will be applied to purchasers of additional residential properties with effect from 1 April 2016. The surcharge will apply to purchasers of second homes or buy-to-let properties costing over £40,000, where any of the purchasers already owns a residential property in the UK or elsewhere.
After consultation, the Chancellor has announced that this surcharge will come into force much as expected, but the expected exemption for significant investors, such as owners of a portfolio of residential properties, will be omitted.
In addition, the period during which a refund can be claimed where a person buys a new main residence before their old one is sold has been extended from 18 months to 36 months.
SDLT on commercial property
The method of calculating SDLT on commercial property has been overhauled. As with the changes to SDLT on residential property (announced in the 2014 Autumn Statement) the regime will change from a slab to a slice system with a new top rate of 5 per cent for consideration over £250,000. There will be a zero rate for consideration up to £150,000 and a 2 per cent rate between £150,000 and £250,000. The changes take effect from midnight on 16 March, but with transitional provisions for contracts signed before midnight.
Purchasers for a consideration of less than £1,050,000 will be up to £5,000 better off under the new regime; purchasers above that level will be worse off.
The Government has published its business tax roadmap, setting out the direction of travel on corporation tax for the next four years. The roadmap includes a number of attractive measures - the rate of corporation tax will fall to a 17 per cent from 2020 rather than the 18 per cent previously announced. However, this is counterbalanced by other measures - including proposals to cap interest deductions at 30 per cent of taxable EBITDA.