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Budget 2016: Overview of tax changes

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

This week’s Budget involved a number of new tax measures right across the spectrum. Although billed as the Budget for the next generation, the tax elements would impact workers in the north sea oil and gas fields to wizened sports-persons enjoying a benefit season.

This article provides an overview of the tax changes for Budget 2016:

 

Business and Company

The rate of Corporation tax will fall to 17% from April 2020. This built on previous announcements which had already stated that this would fall to 18% by the same date.

The ability of Companies to carried forward and offset losses against profits will be restricted from April 2017. They will be limited to offsetting 50% of their profits above £5m from this date.

From the same date, Companies will broadly be capped at 30% of EBITDA but specific rules may exist for groups who might be able to use a group-wide ratio.

It was also announced that UK withholding tax will apply to royalty payments for the use of intellectual property including trademarks and brand names. However, payments made under double tax treaties or where EU Directives apply will not be subject to withholding tax.

There were also changes to the value of tax savings which can be achieved by giving employees shares for rights under the Employee Shareholder Scheme (ESS).

 

Property taxes

The previously announced 3% SDLT surcharge on the purchase of ‘additional properties’ was confirmed and will apply from 1 April 2016.  The draft legislation has now been published. Buy to Let investors will now have to bear this transaction cost in mind when acquiring new properties.

Commercial property also came under scrutiny at this Budget after getting off lightly over previous Budgets.

The slab basis will be consigned to history and a top rate of 5% on consideration above £250,000 will apply. This could represent a significant increase in the effective rate payable on larger commercial property transactions.

 

Individuals

The higher and basic CGT rates of CGT will be reduced to 20% and 10% respectively.

However, UK residential property is carved out of this reduction as is ‘carried interest’ for the private equity / investment industry. These will continue paying CGT at the previous 28% and 18%

Class 2 NICs for self-employed individuals will be abolished from April 2018.

There will be an extension of Entrepreneurs’ Relief (ER) for external investors who are not employees or directors that are making long term investments in unlisted trading companies.

The concept of a ‘lifetime ISA account’ was unleashed on the British public. These will be launched and it seems they will be similar to the 401K accounts that are prevalent in the US.  The Lifetime ISA is designed to promote saving towards the purchase of a first home or to fund pension benefits.

 

Anti-avoidance and tax evasion

As one would expect, there was also a myriad of anti-avoidance measures including:

  • Prevention of the avoidance by using Double Tax Treaties for non-UK resident property developers with UK projects;
  • Proposed tightening of salary sacrifice arrangements;
  • Targeted avoidance in relation to ‘disguised remuneration schemes’;
  • Corporate tax measures including hybrids, royalty payments, transfer pricing and loss relief;
  • Measure in relation to online VAT fraud in goods;
  • Further toughening over marketed tax avoidance;
  • Increased sanctions for offshore tax evasion

 

If you have any questions regarding the Budget then please let us know

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