There are many changes in this Budget that will be helpful for entrepreneurs and investors – including lower business rates, corporation tax and CGT, and some beneficial changes to Entrepreneurs' Relief and the introduction of a 10% CGT rate for some investments in unlisted companies. The lack of changes to pension rules will also be welcome news to many.
Property continues to be a target for tax. There are further changes for residential properties and commercial properties sold for over £1.05m will incur more SDLT.
The effect of many rule changes of recent years means that businesses and property investors shouldn't assume that even fairly recent structures, planning and remuneration strategies are still appropriate.
This provides a saving for lower value properties but increases the SDLT for those costing over £1.05m.
Leases already operated on a slice system and this is unchanged with the exception of a rise from 1% to 2% where the Net Present Value of the lease exceeds £5m.
Some points to be aware of:
It will be interesting to see whether the new Dividend Tax rates rise over time as the corporation tax rate falls.
On that note, from April 2016, the rate of the temporary tax charge for overdrawn Director's Loan Accounts (s455 charge) is increasing from 25% to 32.5% - thus mirroring the increase in the rate of income tax that applies to dividends in the higher tax band.
This is probably to avoid tax planning opportunities that the difference in rates might otherwise have created.
Although quite technical in nature, all the changes to ER over the years – and these reversals of some of those changes – mean it isn't always the simple area it might once have been perceived to be.
Especially given the amounts that are often involved, a review of ER eligibility is often worthwhile – ideally well before a transaction so that any changes that might be needed can be in place for at least 12 months prior.
Very briefly, the partial rule reversals relate to:
The effect of many rule changes of recent years means that businesses and property investors shouldn't assume that even fairly recent structures, planning and remuneration strategies are still appropriate.
Stamp Duty Land Tax ('SDLT')
The SDLT system for non-residential properties has moved away from the old 'slab' system and onto a 'slice' system, so following the change that was made for residential property in December 2014.This provides a saving for lower value properties but increases the SDLT for those costing over £1.05m.
Leases already operated on a slice system and this is unchanged with the exception of a rise from 1% to 2% where the Net Present Value of the lease exceeds £5m.
Residential property taxes
As noted in my November 2015 newsletter, there have been many changes to the taxation of residential property – particular if let or it is owned by a company.Some points to be aware of:
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Sales of residential property by individuals continues to attract the 18% and 28% rates of CGT.
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It has been confirmed there will not be a 'large corporate landlord' exemption from the additional 3% rate of SDLT that applies to additional residential property purchases after 1 April 2016.
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On a positive note, Incorporation Relief was not withdrawn for property businesses. This can allow deferral of CGT when let properties are transferred to a company. Such transfers can help mitigate the effect of the upcoming interest relief restriction and facilitate future CGT and IHT planning.
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Remember that Wear and Tear Allowance is abolished from 6 April 2016 and replaced with an allowance for replacement items – which can be claimed for both furnished and unfurnished properties.
Corporation tax rate – reducing to 17%
The rate is to be cut further from the 18% already announced – to 17% from 1 April 2020.It will be interesting to see whether the new Dividend Tax rates rise over time as the corporation tax rate falls.
On that note, from April 2016, the rate of the temporary tax charge for overdrawn Director's Loan Accounts (s455 charge) is increasing from 25% to 32.5% - thus mirroring the increase in the rate of income tax that applies to dividends in the higher tax band.
This is probably to avoid tax planning opportunities that the difference in rates might otherwise have created.
Class 2 NIC
Abolished from 6 April 2018. The 2015/16 rate is £2.80 per week where self-employment earnings exceed £5,965.Entrepreneurs' Relief – Reversal of changes
Significant changes have been made to these rules in recent Budgets and I have provided comments in my newsletters. Interestingly, the changes announced now partially reverse some of these earlier changes – to the benefit of taxpayers.Although quite technical in nature, all the changes to ER over the years – and these reversals of some of those changes – mean it isn't always the simple area it might once have been perceived to be.
Especially given the amounts that are often involved, a review of ER eligibility is often worthwhile – ideally well before a transaction so that any changes that might be needed can be in place for at least 12 months prior.
Very briefly, the partial rule reversals relate to:
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Sale of goodwill to a related company (Dec 2014)
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Joint ventures and holding companies (March 2015)
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Associated disposals (March 2015)
All changes are backdated to the dates shown above.
The last rule change is likely to be most significant for owner-managers as it means that ER is less likely to be denied on an 'associated disposal' (such as a property held outside the company) when the company is passed to the next generation. The rule change unwittingly caught some innocent transactions so it is good that the rules are being amended – and backdated to help those who might have not realised their planning was affected!
The government eventually decided not to introduce further changes or restrictions for pension tax relief. There had been rumours about changes to the tax free lump sum or income tax relief.
ISAs
The limit will rise from £15,000 to £20,000 and under 40s will be able to save in a Lifetime ISA which benefits from a government contribution.
Investors Relief
A 10% rate of CGT for holdings of new shares in unlisted trading companies. They must be held for 3 years and employees/directors of the company won't be eligible.
For 2016/17, the point at which a person becomes a higher rate taxpayer will finally exceed its 2012/13 level!
The new rates do not apply to disposals of residential property.
These reductions, along with the increase in income tax rates for dividends, mean that the incentive to seek CGT rather than income tax treatment is as strong as ever.
On the downside, Osborne slashed the CGT exemption for his 'flagship' Employee Shareholder Status shares to £100k. Presumably because of the huge benefit he now realises it handed out to Private Equity firms.
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The last rule change is likely to be most significant for owner-managers as it means that ER is less likely to be denied on an 'associated disposal' (such as a property held outside the company) when the company is passed to the next generation. The rule change unwittingly caught some innocent transactions so it is good that the rules are being amended – and backdated to help those who might have not realised their planning was affected!
Investments
PensionsThe government eventually decided not to introduce further changes or restrictions for pension tax relief. There had been rumours about changes to the tax free lump sum or income tax relief.
ISAs
The limit will rise from £15,000 to £20,000 and under 40s will be able to save in a Lifetime ISA which benefits from a government contribution.
Investors Relief
A 10% rate of CGT for holdings of new shares in unlisted trading companies. They must be held for 3 years and employees/directors of the company won't be eligible.
Personal allowance & the basic rate tax band
Both the personal allowance and basic rate band continue to increase towards the £12,500 and £50,000 targets the government has announced.For 2016/17, the point at which a person becomes a higher rate taxpayer will finally exceed its 2012/13 level!
Reduction in CGT rates & Employer Shares
The rates of CGT fall from 6 April 2016. The basic rate from 18% to 10% and the higher rate from 28% to 20%.The new rates do not apply to disposals of residential property.
These reductions, along with the increase in income tax rates for dividends, mean that the incentive to seek CGT rather than income tax treatment is as strong as ever.
On the downside, Osborne slashed the CGT exemption for his 'flagship' Employee Shareholder Status shares to £100k. Presumably because of the huge benefit he now realises it handed out to Private Equity firms.
If you want to print or save this blog please click here.