We set out below our wishes and thoughts around a few of the key issues that we anticipate to see in the Chancellor’s Budget due on the 16th March 2016. Check back in with us on the day of the Budget for our analysis of the Chancellor’s speech and what it will mean in practice. In the meantime, if you require any further assistance please feel free to get in touch.

David Jervis, Head of International Tax, talks about the hopes and wishes from this year's Budget.

Click here to view the video below.


Income-based carried interest

In December the Government published draft legislation, the effect of which is, broadly, that, from 6 April 2016, carried interest will be taxed entirely as income (rather than capital) unless the relevant investment fund holds its assets for an average period of four years or more. Capital treatment will be partially available where the average period is between three and four years tapering from 25% to 100% capital over that period.

The rules have been subject to extensive lobbying by the fund management industry and are expected to change significantly before they are enacted. Amongst potential changes, it may well be that the 4 year holding period is reduced and the rules providing for a “conditional exemption” from the income tax charge in the early years of the fund are broadened. In addition, the draft rules contained special provisions which benefited private equity, and it may well be that these provisions are extended to other asset classes.

That being said, we would not necessarily expect any changes to be announced in the Budget, rather they may well emerge via the publication of the 2016 Finance Bill which is expected to follow the next week.

Cathryn Vanderspar, Head of Tax, London, speaks about her expectations around management fee announcements in the Budget 2016.

Cathryn Vanderspar, Head of Tax, London, speaks about her expectations around SDLT seeding relief announcements in the Budget 2016.


Business Tax Roadmap

On Budget day or shortly after, we expect the Government to publish the Business Tax Roadmap announced in last year’s Autumn Statement. The intention behind this Roadmap is to encourage stability and transparency for the UK business tax system, assisting businesses to make long-term investment decisions. Little is known about the areas to be covered by the Roadmap, but it is hoped that the Roadmap will provide clarity in areas such as the ongoing implementation of BEPS, the long overdue reform of business rates and reform on other areas of cumbersome business taxation such as certain energy taxes, as well as the ongoing efforts to simplify the complex UK tax system.

Ben Jones, Partner, speaks about his expectations around business road mapping announcements in the Budget 2016.

Business rates

It is expected that in the Budget the Government will announce the outcome of its review of the UK business rates system. British Business has been calling for an overhaul of the outdated business rates system for some time now, but it is being reported that many of the changes sought by business will not be adopted. It is hoped that a compromise is reached and a new business rates system can be created that is fairer, more responsive to value fluctuations and has stability.

Interest deductability

Cathryn Vanderspar, Head of Tax, London, speaks about her expectations around interest deductions announcements in the Budget 2016.

Real Estate

SDLT 3% surcharge

Following the closure of the consultation in February on the 3% surcharge SDLT on additional residential property, we expect the Chancellor to announce the details surrounding this tax charge.

There has been a lot of lobbying within the industry as this additional SDLT cost has major ramifications for the private rented sector. Large scale investors serve an important role in the rented housing market, in fact much of the demand for this is now met by the private sector, especially commercial landlords who invest in residential property portfolios.

We hope that the government will have taken into consideration the responses received through this consultation, especially those highlighting the need for an exemption for “widely held” funds and companies and/or the use of a portfolio test (as opposed to a bulk purchase test) where appropriate. The portfolio test will ensure that investors are not penalised for building up their residential property portfolio through individual purchases of properties rather than a bulk buy of 15+ properties (which might not be feasible for many reasons).

We will have to wait and see where the line has been drawn.

Read our article that sets out this measure in more detail when it was first announced in the Autumn Statement last year.

Cathryn Vanderspar, Head of Tax, London, speaks about her expectations around Stamp Duty Land Tax (SDLT) surcharge.

Cathryn Vanderspar, Head of Tax, London, speaks about her expectations around SDLT seeding relief announcements in the Budget 2016.


Pensions and likely changes

Contrary to expectations, the Chancellor has confirmed that no changes to the pension tax relief regime will be announced at Budget 2016.

In July 2015, the government launched a consultation on modifying the system of pension tax relief, seeking views on the ways in which the current system could be reformed. Proposals put forward included turning the current exempt-exempt taxed system on its head to make it a taxed-exempt exempt system, like for ISAs, as well as less radical, but still significant, changes such as moving to a fixed rate of tax relief for all.

Whilst an announcement on the intended changes was widely expected to be made at Budget 2016 the Chancellor has subsequently confirmed that now is “not the right time” to make modifications to the current regime. A formal response to the July 2015 consultation is, nevertheless, still expected on 16 March, which should throw some light on the direction of the government’s thinking.

Notwithstanding the Chancellor’s confirmation above, it is still possible that some pension related announcement will be made. The Treasury noted in the Summer Budget that it is ‘actively monitoring’ the growth of salary sacrifice schemes and their effect on tax receipts, so changes in this area remain a possibility.

Francois Barker, Head of Pensions, outlines what we can expect for pensions in the Budget 2016.


Check back for further comments on this subject.


VAT Grouping

The Government may introduce legislation to make it clear that the management of a defined contribution scheme is VAT exempt. This change is anticipated in the light of the Court of Justice of the EU’s decision in ATP and referenced in Revenue and Customs Brief 44/14 published on 25 November 2014