George Osborne delivered his 2016 Budget this afternoon – ‘a Budget for the next generation’. The announcements today will impact on advisers and their clients. There is a lot of detail behind the announcements, but here are some highlights:
Capital gains tax
From 6 April 2016 the higher rate of capital gains tax will be reduced from 28% to 20% and the basic rate will be reduced from 18% to 10%. The reduced rates will not be available on disposals of carried interest and gains on residential properties. These will be subject to an 8% surcharge on the new rates.
Entrepreneurs’ relief (ER) will be extended to include an investors’ relief. This will be available to investors (not employees) who subscribe for new shares in an unlisted trading company on or after 17 March 2016. The shares need to have been held continually for a period of three years before disposal
ER and Goodwill U-turn – where an individual transferred a business to a limited company on or after 3 December 2014 FA 2015 denied ER. It seems that this is now reversed from 3 December 2014 where certain conditions are met.
ER and trading company – there are plans to review the definition of a trading company for ER purposes. This could result in a list of ‘excluded activities’.
From 2018 Class 2 NIC for self-employed individuals will be abolished.
From 6 April 2016 the rate of tax payable by close companies on loans to participators will increase from 25% to 32.5%. This applies to loans made on or after 6 April 2016.
The corporations tax rate will be cut to 17% in 2020 (originally planned to drop to 18%) .
From April 2018 national insurance contributions will be payable on termination payments over £30,000. A technical consultation will be undertaken before the measures come into effect.
Changes to the disguised remuneration regime have been introduced with immediate effect, to restrict the effect of rules that allow employees to escape tax charges by paying for assets held in trusts by introducing a targeted anti-avoidance rule – if there is a tax avoidance motive underlying the transaction, it will be treated as giving rise to income tax and NIC charges immediately.
In addition, to give companies and EBT participants an additional impetus to settle their cases, the rules exempting capital growth in EBTs from employment taxes have been given a “sunset” provision – cases must be finalised and tax paid before 1 December 2016 to benefit from the relief.
The generous relief, that completely exempted shares acquired under an Employee Shareholder Status (ESS) agreement from CGT, which was introduced in Finance Act 2013, has been very significantly curtailed.
Shares issued pursuant to such agreements after midnight tonight will be subject to a lifetime limit of £100,000 – only the first £100,000 of gains will be exempt from tax, anything in excess of that number will be subject to CGT in the normal manner.
Gains arising on shares that were issued before midnight 16 March 2016 do not count towards the limit and the employees will continue to enjoy the exemption.
From April 2017 a new Lifetime ISA will be introduced for adults under 40. Savers will be able to pay in £4,000 per year and receive a 25% bonus up to their fiftieth birthday. The funds can be withdrawn from age 60 or at any time after the first 12 months if the funds are used to purchase a first home up to £450,000.
Stamp Duty Land Tax
From midnight tonight, SDLT payable on non-residential properties will be replaced with a progressive rate system, rather than the current slab rate, so that SDLT is charged paid on the portion of the purchase price in each band. The bands will be £0-£150,000 – 0%, £150,001-£250,000 – 2% and above £250,000 5%. There will be transactional rules for those acquisitions where exchange has taken place before 17 March 2016. For larger commercial property acquisitions this change will represent a significant increase in the SDLT cost.
Following recent consultation, the additional 3% SDLT payable on the purchase of further residential properties will come into force from 1 April 2016. No portfolio exemption will be in place from this additional charge. In response to the consultation process, the Government have proposed that, to qualify for relief from the additional 3% charge, the time limit for an individual to replace their main residence will be extended to 36 months (rather than 18 months as outlined in the consultation). Married couples will no longer be treated as a single unit where the separation is likely to be permanent. Where a small interest in a property is inherited within the last 3 years, this will not be considered to be an additional property for the purposes of the test.