Tax Efficient Digest

Tax efficient digest – 17 March 2016

By 17th March 2016 No Comments

A giveaway budget, but with a “sugar coated” tax bombshell for 2019-20, as Osborne plots his way to Number 10!

The Budget

EIS Budget – Nothing Significant!  Confirmation of what we already knew in regard to exclusion of energy generation as a trade for EIS Companies after 5 April.  The only point of note was a technical change to the definition of the “5 year period” for determining a company’s average turnover when looking at a possible allowance for investing in companies whose “first commercial sale” was more than 7 years ago.

Income tax boost for lower and middle earners – The Chancellor announced that the tax-free personal allowance will rise from £11,000 in April 2016 to £11,500 in April 2017.  He also confirmed the threshold at which people pay 40% income tax will rise from its current level of £42,385 to £45,000 in April 2017.

Stamp duty overhaul announced – Commercial stamp duty will be overhauled with the introduction of a 0% rate on purchases up to £150,000, a 2% rate on the next £100,000 and a 5% top rate above £250,000. A new 2% rate for high-value leases with net present value above £5m will also take effect from today. The overhaul introduces a “slice” system, in which stamp duty is payable on the portion of each transaction that falls within the relevant price band.

CGT rates cut -The higher rate of CGT will be cut from 28% to 20% and the basic rate of CGT will be cut from the current 18% rate to 10% at the start of the new tax year on 6 April.  However, the old higher rates will still apply to gains on the sale of a residential property that is not a main home (such as a second home or a buy-to-let property), and also to “carried interest”.

Multinationals miss out with restrictions on loss and debt relief – Mr Osborne will also cap relief on interest payments used to reduce tax paid on UK profits at 30% of UK earnings, with exceptions for groups with legitimately high interest payments.  Also, banks and multinationals are set to lose out after being hit by new restrictions on how they can deal with historic losses and interest on their debts. The Chancellor has brought in restrictions barring all such carried forward losses to 50% of profits. The changes will only apply to companies making profits over £5m. A slightly larger amount will be raised by tightening existing rules restricting losses that can be used by the banking sector, which will be reduced to 25% of current profits.

Corporation tax shakeup – Despite the new measures targeting multinationals, the headline rate of corporation tax, currently 20%, will fall to 17% by 2020, George Osborne has confirmed. The reduction will leave Britain with one of the most competitive rates of profits tax among large nations – America’s rate is 40%, while Germany and France are on 29% and 32% respectively.

Business rates reform – Annual increases to business rates will rise in line with the Retail Price Index, instead of the higher Consumer Price Index, while around 600,000 commercial properties will be removed from the rates tax permanently, the Chancellor announced. George Osborne said he would end temporary rates relief for businesses on an ad hoc basis, and replace it with a permanent cut for any business with a rateable value of less than £15,000, up from £6000 last year.

Sharing-economy generation handed tax break and chance to be micro-entrepreneurs – People who boost their income with occasional odd jobs will be allowed to keep up to £2,000 in extra earnings without paying tax. And short-term landlords, such as those using the Airbnb platform, have been handed a new £1,000 tax-free allowance offered on income from such rentals.

Lifetime ISA announced  – Under a new Lifetime ISA announced in the Budget millions of adults under 40 will receive a 25% bonus from the government. From April 2017 they will be able to put in up to £4,000 a year, with the annual bonus of up to £1,000 paid until the age of 50. The Chancellor said that savers would be able to withdraw money from a Lifetime ISA at any time, and would not pay any tax on it. He also revealed that from April 2017 all savers will be able to put up to £20,000 a year into ISAs, up from £15,240 at the moment.

Class 2 NICs scrapped – Class 2 NICs are to be abolished from 2018, in a move calculated to give a tax cut of more than £130 for 3m self-employed workers. Currently about 3.4m people pay Class 2 NICs at a rate of £2.80 a week, which contributes to their state pension entitlement and other benefits.

Tax office to open 7 days a week – HMRC is to offer support seven days a week in a bid to improve customer service. The tax office will extend its telephone opening hours and recruit 800 new call centre staff by 2017 in a bid to reduce call waiting times.

Sugar tax grabs headlines – A new sugar tax on the soft drinks industry is to be introduced in two years’ time, raising £520m a year to be spent on doubling funding for primary school sport in England.

Fuel duty frozen – Fuel duty has been frozen for the sixth year in a row, offering a saving of £75 a year to the average driver.
Rise in insurance premium tax – Insurance premium tax is to rise from 9.5% to 10%. The Chancellor said the extra money raised would be spent on improving flood defences.

UK economy and markets

Growth forecasts cut for next five years – The UK economy will grow more slowly in the next five years than had been expected in November, the Office for Budget Responsibility has said. The OBR had previously forecast that the economy would grow 2.4% this year, but is now predicting a rate of 2.0%. George Osborne said the cuts had been due to a reduction in the OBR’s forecasts of productivity. However, the Chancellor confirmed that he was still on-track to meet his target of having a budget surplus by 2019-20.  However, looking at Budget announcements yesterday, this will be delivered by virtue of tax bombshell for 2019-20!

Unemployment at lowest since 2005 but benign wage growth – The UK jobless total fell by 28,000 to 1.68m in the three months to January, the sixth consecutive monthly fall. The national unemployment rate of 5.1% is the lowest since Autumn 2005, according to the ONS.  Average earnings increased by 2.1% including bonuses and by 2.2% excluding bonuses compared with a year earlier.

Christian Elmes, Partner

Christian Elmes trained at PwC and qualified as a chartered accountant in 1999, before moving to Morgan Stanley (2000-2002) as Associate in the Investment Banking Division (IBD).

He was appointed Director of Finance, Teather & Greenwood Investment Management in 2002 and moved with the Tax Efficient Solutions team to Smith & Williamson in 2004, becoming Deputy head of the department. He left to co-found Enterprise in 2011.

Over the last ten years, Christian has been responsible for developing a number of tax efficient products, particularly Enterprise Investment Schemes. He is able to lead on tax efficient product development from inception through to completion, because of his financial and tax background and commercial experience.

Christian is competent across a broad range of sectors including, leisure and hospitality, media, property and renewable energy.

Christian is a non-executive board member to a number of leisure and hospitality companies, Casper & Cole Ltd, Wright & Bell Ltd, Albion & East Ltd, Camm & Hooper Ltd and Darwin & Wallace Ltd.

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