As the Chancellor stood up to deliver his ‘budget for the long term’ he announced that the British economy is ‘fit for the future’ but he didn’t deliver as many changes as many expected.
Prior to the budget there had been announcements that the expected proposals to reform tax relief on pensions, including a potential flat rate or even no tax relief, would not take place and in line with those announcements there was very little on pensions for once, except the new lifetime ISA for under 40s.
As expected the Chancellor announced a further increase in the personal allowance to £11,500 for 2017/18 and an extension to the higher rate tax threshold from £43,000 in 2016/17 to £45,000 in 2017/18.
Surprises included the reduction in Capital Gains Tax from 28% to 20% for higher rate taxpayers and 18% to 10% for basic rate taxpayers from this April and the extension of Entrepreneurs’ relief for those investors who have held shares acquired pre 17 March 2016 in unlisted trading companies for at least three years post 6 April 2016, even if they do not meet the other connection criteria. In further measures aimed at the buy to let market the reduced rates will not apply to residential property that does not qualify for main residence relief.
Some good news for businesses with the Small Business Rate Relief threshold due to rise from £6,000 to £12,000 from April 2017 and the rate of Corporation Tax due to fall to 17% from April 2020. In a ‘sharing’ economy there were also tax reliefs announced for those using online services such as ebay.
Long awaited plans to cut national insurance contributions for self-employed people were confirmed with the removal of Class 2 NIC contributions from April 2018. There are also plans to reform Class 4 NIC contributions including a contributory benefits test.
Changes to the tax position of personal service company workers were expected following the ineffectiveness of IR35. From April 2017 individuals working through their own company in the public sector will no longer be responsible for deciding whether the Intermediaries legislation applies. The responsibility for deducting tax and NIC is to rest with the public sector employer, agency or third party that pays the worker’s intermediary. Coupled with that was tightening of the tax rules surrounding employee termination payments from April 2018.
The flexible lifetime ISA which will allow those aged under 40 to save up to £4,000 per annum and receive an additional 25% bonus from the government has already been criticised as too complicated. To be introduced from April 2017 any adult under 40 will be able to open the lifetime ISA. Funds can be used to purchase a first home or withdrawn over the age of 60 for use in retirement. Whilst attractive to young people this could also potentially be a tax efficient way for older taxpayers who are looking to do some Inheritance Tax Planning by gifting funds to the younger generation for them to invest.
Following the recent changes to SDLT for residential property there will now be amendments to the rates on freehold commercial property and leasehold premium transactions to introduce a slice based approach. There was also confirmation that the SDLT levy on buy to let residential properties will include those purchased by a company holding at least 15 properties.
The Chancellor continued with his plans to clamp down on those who avoid tax including on multinational tax avoidance with his Business Tax Road Map and detailing action to shut down disguised remuneration schemes and confirmed the long awaited ‘sugar tax’ on fizzy drinks to combat obesity.
This was very much a cautious budget to keep the electorate onside before the 23 June Brexit vote with major changes kept to a minimum but still a few surprises.