I am not afraid to say that the Budget was, yet again, not what I was expecting. In my mind, we were sure to get announcements of sweeping tax changes to increase tax take given we have a government with a significant majority, and likely 5 years before another general election. Surely now was the time to make unpopular change? Particularly changes unpopular to the traditional and stereotypical Conservative Party voter?
What we have ended up with is largely a non-event from a tax point of view. This can be put down to 3 main reasons in my view:
- The obvious one being the COVID-19 situation – this needed to be a priority, and therefore attention to proposed tax change was rightly diverted to looking at measures to mitigate the economic impact the situation is inevitably going to have;
- The unexpected change in Chancellor weeks before the Budget – Rishi Sunak was always going to want to consider proposals and a matter of weeks was, in hindsight, too short a period for him to do so following Javid’s resignation– especially with the COVID-19 priority; and
- There will almost certainly be another (potentially larger) Budget this year in the Autumn – I am now expecting the sweeping tax changes to be announced then.
The Budget focus was clearly on spending, borrowing and the COVID-19 situation.
To mitigate the impact of COVID-19 for smaller business the Chancellor announced a number of measures to assist businesses ranging from assured leniency from HMRC on ‘time to pay’ arrangements re tax payments (but notably no formal waiver of payment deadlines as has been implemented by other countries), cash grants for businesses claiming small business rate relief, easier access to finance etc.
Of the few announcements on tax, arguably the headline was the restriction to capital gains Entrepreneurs’ Relief. There was always going to be an announcement on entrepreneurs’ relief given the attention paid to the relief in recent months. The reduction in the lifetime limit from £10m to £1m per individual takes us back to the limit when entrepreneurs’ relief was first implemented in 2008. The maximum saving is now worth £180k (for residential property sales), down from £1.8m. The change will be ‘bitter sweet’ for clients – whilst some will breathe a sigh of relief that the relief is still there, those that are anticipating qualifying gains in excess of the new lifetime limit will rightly feel aggrieved. Unlike in 2008, the change was implemented as of Budget Day, and so there is no opportunity to implement planning for the change (and also any planning undertaken before Budget Day anticipating the change will likely be redundant due to anti-avoidance measures)– again a disappointment for those in the latter category. For the majority clients in Cornwall, the fact the relief is still here is something to be considered a bonus.
I was expecting large scale changes to inheritance tax in line with the OTS recommendations that were announced last summer (https://www.rrlcornwall.co.uk/articles/tax-blog/ots-recommend-iht-overhaul/), but there were no such changes announced. I expect these changes will come in the Autumn Budget, therefore would strongly warn against complacency and would urge Cornish individuals and businesses to plan for such changes.
Big pension changes were rumoured before the Budget. There was a very welcome change to increase the income thresholds when the annual allowance is restricted – increased significantly (by £90k). The rumour was that a standard rate of tax relief of 30% was to come in, and whilst disappointing for basic-rate pension savers, I think what we now have is a better result – no significant change, higher-rate tax relief is still available, and higher thresholds before tax relief on pension contributions is restricted. The restricted (or tapered) annual allowance was always ripe for change given the well documented issues with higher-paid NHS employees – however, I thought that the public sector may have been carved out, it is welcomed that the increase in the thresholds apply to all.
The business rates holiday for the smaller businesses in the retail, leisure and hospitality sectors will be extremely useful, especially given the size of those sectors in Cornwall. Albeit, only a one year holiday at the moment! The commitment to a full review of the business rates system was reiterated by the Chancellor to be reported on in the Autumn – let’s hope for some sense here.
Other smaller boosts are the increase in the employment allowance (the allowance for businesses against their employers’ class 1 NIC bill – reduced from £3k – £4k) – small but helpful!
The first year capital allowance for new low C02 emission cars and zero-emission goods vehicles has been extended to 2025, as expected. This makes a low C02 emission car still an extremely attractive option from a tax perspective (https://www.rrlcornwall.co.uk/articles/tax-resources/changes-to-ultra-low-emission-vehicles/). Albeit, the plug-in grant has been reduced from £3,500 to £3,000, and is no-longer available for cars costing more than £50,000.
Whilst not directly relevant to Cornwall (other than of current affairs interest), a big geo-political announcement was that the 2% digital services tax will be implemented as proposed. Given the companies that will pay the tax are predominantly US companies, Mr Trump has loudly (does he do it any other way?) voiced his discontent at the proposal and implied a negative impact on trade negotiations will result. Something to watch for in the coming months/years. I suspect the tax will not be around for long due to the issue being the focus of collaborative global efforts, but still must have an interesting impact on UK/US relations none-the-less.
In addition to the announcements yesterday, there are changes coming in on 6 April 2020 that we have known about for a while – a huge, and still relatively unknown change (despite my efforts), are the capital gains tax changes relating to sales of residential property (https://www.rrlcornwall.co.uk/articles/tax-blog/capital-gains-tax-changes-residential-property/), these need consideration.
Overall, a Budget that will be remembered for the COVID-19 situation, and the apparent end to austerity – time will tell how this impacts future Budgets. I anticipate a more interesting one from a tax perspective in the Autumn.
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