Initial reaction to Budget 2016
Small changes to the corporation tax system may seem innocuous but will have a significant impact on businesses who are affected. A tax deduction for interest will be restricted to 30% of EBITDA, for groups with profits above £5 million only 50% of profits can be offset by brought forward losses and new anti-avoidance rules will apply to royalty payments and hybrid financing arrangements.
Although the corporation tax rate will reduce to 17% from 2020, the changes will result in additional tax for many companies.
A key message was support for small businesses, and making them more competitive. Thresholds for business rates will be reduced, and a £1,000 tax-free allowance introduced for property and trading income earned by micro-entrepreneurs.
A new SDLT structure will apply to commercial property acquisitions, with a higher rate of 5% applying to the consideration over £500,000. In addition, a 2% rate will apply to leases with a net present value above £5 million. These rates will apply from midnight tonight.
On the other hand, taxes have been cut for many individuals. Class 2 national insurance will be abolished from 2018, the Personal Allowance to be increased to £11,500 from 6 April 2017, and the higher rate threshold will be increased to £45,000.
Capital gains tax rates will be cut from 28% to 20% for higher rate taxpayers, and from 18% to 10% for basic rate taxpayers. Entrepreneurs’ relief will be extended to also include new shares issued after today, and held for more than three years in unlisted companies.
A new “lifetime ISA” will be introduced from 6 April 2017 for the under 40s. The funds will be increased by a 25% bonus, and can be used to buy a first home or can be drawn down from the age of 60. Funds can be drawn down before then but without the bonus.
As usual, a number of anti-avoidance measures have been announced, affecting disguised remuneration, property development profits earned by non-residents, and capital gains tax on performance awards. A cap will be placed on the capital gains which can be received tax-free under the Employer Shareholder Status (ESS) scheme. Termination payments above £30,000 will be subject to employer’s national insurance from 2018.