Who benefited and who lost out? We provide expert commentary on the Government’s Budget announced today
On the new 30% tax relief-rate for social investment
Social Economy Alliance spokesperson and Chief Executive of the Social Investment Business Jonathan Jenkins, said:
“This is excellent news for Britain’s social economy. Many thousands of new and maturing social ventures need finance to grow and reach their true potential. The Social Investment Forum has fought long and hard for this tax relief, which should bolster the social investment market and get more investors pumping capital into social enterprises and charities.
“But this will be a missed opportunity if it’s not fully promoted by Government, who should work with the sector to market and promote the tax relief, so more businesses and investors can improve their social impact. This relies on the collaboration of the whole financial advisory community.
“It’s a critical time for the social investment market. The world is increasingly relying on social economy organisations to tackle some of its most pressing problems. But, like all businesses, they need capital and investment to survive.”
Nick O’Donohoe, Chief Executive of Big Society Capital, said:
“The Chancellor has today given a very welcome pledge to set the rate of social investment tax relief at a level that we believe will encourage a more investors to put more money into social enterprises.
“The introduction of venture capital tax reliefs in the UK 20 years ago led to individuals investing £14 billion into small growing businesses. But finance is changing. Now is the time for investors to seize this opportunity to invest for social good and benefit from tax relief that is equivalent to existing schemes.
“To increase the impact of the social investment tax relief, Big Society Capital is developing “How To” guides for new investors and social enterprises. These are being written with leading industry experts and are due to be published in April. We are also working with potential developers of the first social investment tax relief products in order to demonstrate the range of uses of the tax relief.
“Finally we will be partnering with legal experts to develop easily adaptable investment documentation to make the relief easier to use.”
Matt Mead at Nesta Impact Investments said:
“By setting the tax relief for social investment at 30% this starts to level the playing field and makes investing in charities and social enterprises as attractive as investing in small private companies. While it’s shame that this will initially only apply to quite small levels of investment and be restricted to certain types of organisations the government are clearly committed to changing this over the next eighteen months. More importantly, this gives a clear signal that impact investing has huge potential as a market.”
On the 15% Stamp Duty for foreign companies buying UK homes worth more than £500K:
Toby Ryland, corporate tax partner, comments:
“Few will shed tears for the wealthy foreign buyers of British property who could suddenly face a 15% rate of Stamp Duty.
“But the Chancellor’s decision to close this tax loophole is more about levelling the playing field than boosting the tax take. Foreign buyers will no longer enjoy big tax advantages if they buy through a company rather than as an individual.
“Don’t expect the overheating London property market to miss a beat, but these new measures may encourage developers to sell more properties to UK buyers rather than overseas investors.”
Managing Partner of Quality Solicitors Talbots, says:
“The increase of stamp duty to 15% for residential properties bought through companies is unlikely to hurt the man in the street as they may need a mortgage which would be difficult to acquire through a company and may involve other tax implications like Capital Gains Tax exemptions.
“This is however more likely to affect London properties being bought for cash where the company subsequently transfers shares to the buyer to pay a lower rate of stamp duty of half a per cent.Extension of right to buy is good for the property market as long as it does not result in inflated purchase prices, which then distorts the market and affects affordability.”
On the demand for upfront payment of tax in avoidance cases
Michael Wistow, Head of Tax at Berwin Leighton Paisner, said:
“If the Government insists on demanding upfront tax payments in avoidance cases a proper right of appeal is critical. This was not the case in the recent consultation. Without this right to appeal, the Chancellor risks putting political considerations ahead of basic taxpayers’ rights.
“It is also proposed that HMRC will demand upfront payments in cases similar to those which have already been decided in favour of HMRC. Whilst populist, it is practically impossible to use one case to determine hundreds of others, given the variety of taxpayers’ circumstances.”
On the changes to ISAs and pensions
Elissa Bayer, Senior Investment Director, at Investec Wealth & Investment, said:
“It’s encouraging to see that savers can benefit from a new breed of tax-free ISAs with an allowance of £15,000 and the end to the absurd rule that only allows savers to transfer cash ISAs into stocks and shares and not the other way round. This will boost the savings industry and allow basic rate taxpayers to benefit from greater flexibility.
“The radical change to the pension system, which means that around half a million people won’t have to buy an annuity, will benefit the economy in the long run as more and more people drawdown money from their pension and spend.”
“The Government’s growth and fiscal reduction figures are attractive but there is still a long way to go – 2018 is a long way off. The idea that £4bn will be raised from people or entities that have illegally avoided paying tax and that the HMRC have been given the authority to get the money direct from people’s bank accounts, will be ugly and certainly not straightforward.
“As ever the question remains, where will the Government find the money to follow through with these ambitious plans?”
On the change to ATED and to tax disputes
Withers Partner Sophie Dworetzsky comments:
“We were promised a big announcement in the Budget, and got quite a few of them. While there is lots of good headline announcements for savers, many of those investing in property through a company will be less happy. The much publicised Annual Tax on Enveloped Dwellings (‘ATED’) has raised five times the amount expected for 2013-14 and, encouraged by this, the Chancellor today announced that anyone holding residential property worth £500,000 or more through a company will now be exposed to ATED.
It will be key to monitor any impact this has on the housing market especially for foreign investors.
As announced in the Autumn Statement, all taxpayers with existing tax disputes arising from planning which is within the DOTAS rules or which falls under the new general anti-abuse rule (‘GAAR’) will have to pay the amount of tax HMRC says is under contention upfront. This could prove to be interesting, given that it extends to old open enquiries and given that what is said to be in dispute and any tax actually due are not always the same. This is clearly a massive cashflow issue for taxpayers who may also need advice on their position. And potentially a human rights issue?
HMRC is also going to have powers to dip into the bank accounts of taxpayers who owe more than £1,000 of tax and this may come as a nasty surprise for anyone with an open enquiry who may not have an actual liability, but faces either paying the tax in dispute in or having their bank account debited…”
Withers’ VAT expert, Graham Elliott adds:
“I am delighted that the long and concerted campaign by air ambulances to achieve VAT relief, on fuel on which I briefly advised a few months ago, has been heeded by the government and has produced the best VAT change of the Budget.”
On the news that ISA eligibility will be extended to peer-to-peer loans
Rhydian Lewis, founder and CEO of RateSetter, the peer-to-peer lending company, said:
“We welcome today’s news that ISA eligibility will be extended to peer-to-peer loans. The government is clearly acknowledging that something must be done to breath fresh life into this failing sector as one of the poorest ISA seasons on record comes to a close. Research has shown that a third of savers would consider P2P ISAs*, so this news could truly reinvigorate the ISA sector.
“The change has the potential to give cash-strapped retirees and young people struggling to get on the property ladder the return on their savings investments that they really need.”
*1 Peer-to-Peer Isa Survey, Populus, compiled January 2014.
Missed opportunity for tax overhaul
Michael Wistow, head of tax at Berwin Leighton Paisner, said:
“What we need is a radical overhaul of the UK taxation system, which needs simplifying rather than complicating. The Office for Tax Simplification have singularly failed in their aim. This Budget is a missed opportunity to announce a much needed overhaul of the tax system.
“The Government has accepted the fundamental economic tenet that a dynamic approach to tax, that is low rates and fewer reliefs, actually raises tax receipts. That fundamental principle is being applied for corporate taxes but should also apply to personal taxes. Coalition politics seems to preclude its application to personal tax.
The top 1% of earners are paying an ever-increasing percentage of overall tax receipts, which currently stands at a third. This is what fairness in tax should be about: whether the top earners pay a higher proportion of the overall tax take rather than a mindless and populist fixation on headline rates.”
OVERALL COMMENTS FROM PRIVATE WEALTH GROUP AT SAFFERY CHAMPNESS
Ronnie Ludwig, Head of the Private Wealth Group, said:
1. Bingo Budget
“Today’s ‘Bingo’ Budget was replete with a healthy dose of political point scoring and a hodgepodge of goodies for just about everyone. It has clearly been aimed at providing financial relief – and no doubt earning political goodwill – amongst Britain’s
2. Further measures to discourage tax avoidance schemes, and tax avoidance by multinationals
Ronnie Ludwig, Head of the Private Wealth Group, commented:
“The requirement to pay tax on disputed tax avoidance schemes is a further bayonet into the dying corpse of aggressive and abusive tax avoidance schemes in the government’s anti-avoidance battlefield. The fact that those entering into such schemes will have to pay tax up front on the assumption that the schemes will fail when challenged under the GAAR, will further dissuade all but the most fervent individuals from investing in them. The government war against aggressive tax avoidance continues unabated.
“Following the recent G20 meeting, the government have also today announced a commitment to take action against ‘profits shifting’ between company groups where advantage is being taken of double tax agreements to remove profits which would otherwise be taxable in the UK. This is a populist measure, with the likes of Amazon and Starbucks in the Chancellor’s crosshairs. How it will be implemented in practice remains to be seen: success will depend on a genuine internationally co-ordinated approach.
“Taken together, these new measures are clearly meant to show that the Government is flexing its muscle when it comes to tackling tax avoidance.”
3. Investment Allowance: doubling to £500,000
James Hender, partner in the Private Wealth Group, commented:
“One of the Chancellor’s themes for this year’s Budget was that both businesses and individuals should invest more. The doubling of Investment Allowance is a welcome step to help get the economy moving and it could mean a sizeable reduction in tax paid by small and medium sized businesses.”
4. Merged Stocks and Shares ISA
James Hender, partner in the Private Wealth Group, commented:
“To encourage greater levels of savings the Chancellor has increased the amount which can be invested each year in an ISA to £15,000. By allowing greater flexibility in swapping ISA investments into or out of cash he has solved one of the key problems faced by some ISA savers who wanted to reduce the investment risk in their portfolios but were prevented from doing so by the rules.
“When taken alongside the new measures on pensions the new stocks and shares ISA, with an increased overall annual allowance, sends a clear political message that the government on the side of responsible savers. This makes a lot of sense after a number of years where savers have been hammered by low interest rates.”
5. Drawdown of pensions
The Government has announced a number of significant changes to the taxation of pensions. James Hender, partner at Saffery Champness, commented:
“The restrictions surrounding how money can be accessed in a pension have caused enormous headaches for many people over the years. Any increase in flexibility here is to be welcomed and particularly the extension of the drawdown rules to those earning less than £20,000.”
Ronnie Ludwig observes on the abolition of compulsory annuity purchase with private pension savings:
“This is a huge sea change. Annuity rates have been falling so far and so fast that pensioners have getting fairly miserable returns on their pension savings.”
6. Tax-free pensions lump sum
James Hender, partner in the Private Wealth Group, commented:
“Despite the speculation otherwise, it appears that the ability to take a quarter of an individual’s pension pot as ‘lump sum’ tax free payment upon retirement remains intact. This will no doubt be a huge relief to millions of individuals as they approach retirement, particularly those who are counting on this up-front payment to set their personal finances on a new, post-retirement trajectory.
“More surprising is the Government’s decision to scrap the punitive 55% tax that currently exists for those trying to take anything beyond the quarter up-front lump sum. The significant drop to normal marginal tax rates is quite an unexpected move, but one that will certainly be warmly received by pensioners and future pensioners across Britain. This is clearly designed to encourage people to feel empowered as they feather their nests for the future.”
OVERALL COMMENTS FROM CROWE CLARK WHITEHILL
Laurence Field, head of tax at Crowe Clark Whitehill comments:
“This Budget is full of goodies. There’s an election coming – after a rough run in the opinion polls the Government needs the feel good factor to return. Higher personal allowances and an increase in the starting point for a higher rate tax to relieve pressure on squeezed middle leaves some scope for more action next year.”
Business investment encouraged
Field continues: “First year business allowances, currently set at 100% relief for the first £250,000, are to be increased to £500,000. The extension to this popular relief will further enable businesses to get deductions for spending on much needed new plant equipment – it will undoubtedly make the decision about whether to invest in the UK easier.”
Theatre tax relief – making the government look cooler?
Field continues: “Successive governments have introduced reliefs for the creation of intellectual property for things like R&D, film production costs, electronic games and high end TV productions. In keeping with these developments the government have introduced reliefs for the production of plays, musicals, opera, ballet and dance at a rate of 25% for touring productions and 20% for other theatre productions.
“This is the Chancellor encouraging the creative industries, where the UK has an international reputation, with the added side effect of making the Government seem marginally cooler!”
John Cassidy, partner, tax investigations at Crowe Clark Whitehill, comments:
Mega-crackdown on tax avoidance
“There were no surprises as the Chancellor announced the continuation of the Government’s ‘mega-crackdown’ on tax avoidance schemes. Stiff legislation, a robust new regime and heavy penalties attached for non-compliance, will apply not only to the promoters of those schemes but also users of the schemes. Once a decision has been made in a case at the relevant tax tribunal or court that a particular scheme does not work, other users of that or similar schemes will be expected to pay up as well.”
“Pay up front”
“More controversially, users of certain avoidance schemes will be forced to pay the tax in advance of the courts deciding that the scheme fails. The disputed tax will be held by the Exchequer and only repaid if the scheme is later found to work – the complete opposite of what happens now. Government is clamping down on people it feels have not paid the right amount of tax, and rightly so – however, in many cases, the “right amount” of tax has not yet been determined.
“These rules will apply to all relevant schemes, not just those entered into after Budget Day, a move which may be criticised as being retrospective taxation but which certainly demonstrates the robust stance being taken by the authorities to discourage those who may be enticed to use avoidance schemes.
“Anyone who is unwilling to pay the tax due under these new rules should bear in mind that he Budget also included an announcement that legislation will be introduced next year to allow HMRC to recover tax directly from the taxpayer’s bank accounts.
Tackling corporate avoidance
“In a bid to tackle tax avoidance by large corporate entities, new legislation will provide that when, in substance, profits are transferred between group companies and a main purpose of those arrangements is to secure a tax advantage, then for tax purposes the transfer will regarded as not having taken place.
“The draft legislation and guidance notes are far from clear but the new rules will apply immediately, so any such transfers made on or after Budget Day are caught, which again demonstrates the Government’s determination to tackle tax avoidance.”
Stacy Eden, head of property and construction at Crowe Clark Whitehill, comments:
Stamp duty – levelling the playing field
“The Government has further discouraged corporate ownership of residential properties by charging 15% stamp duty on corporate purchasers (excluding legitimate residential trading and investment businesses). By owning properties personally, a non-resident UK individual is brought into the inheritance tax net and loses the anonymity of corporate ownership.
“However, what is exceptionally disappointing is the lack of reform to stamp duty by either raising the rates, where there has been no change for nearly 15 years, or by removing the cliff-edge distortions currently existing. This would have given a tax boost to the residential property industry and reduced the effect of this unfair but lucrative tax for the Treasury.”
House Building – failing to meet needs
Eden continues: “The half a billion pounds extra finance set to be provided to small house building firms supporting over 200,000 new homes, alongside further planning reforms, should hopefully stimulate much-needed initiatives, including City Deals, to bolster the property and construction sector. However it will take a lot more than this for us to meet our annual house building needs of 250,000 homes per year.”
Johnathan Dudley, head of manufacturing at Crowe Clark Whitehill, comments:
Strong support for British manufacturers
“A strong Budget showing significant support for the manufacturing sector, with the Chancellor announcing a radical package to ‘cut the cost of manufacturing in Britain’ focused on reducing energy costs for firms. This will alleviate strain on the sector and allow for the energised development of British goods across the UK.
“This acknowledges the key role that the sector is playing in Britain’s recovery. Calls to extend the time period for the Annual Investment Allowance have also been heeded. It will be doubled to £500,000 from next month, allowing businesses to truly invest in the future.
“The announcement of 100,000 new apprenticeships and graduate apprenticeships also addresses the skills gap and the ageing workforce in highly skilled manufacturing businesses.”
Jeremy Cooper, head of retail at Crowe Clark Whitehill, says:
World class help for exporters
“It is good to see the Chancellor encouraging retailers to make sales outside of the UK. Overhauling UK Export Finance’s (UKEF) direct lending programme, doubling it to £3 billion and cutting interest rates to the lowest permitted levels will help retailers take advantage of fast-growing emerging economies.”
Disappointment for flood-hit businesses
Cooper continues: “The recent winter flood had a devastating impact on businesses, particularly smaller businesses in the retail sector. While £140 million of new funding to repair and restore the condition of vital flood defences has been announced, flood-hit businesses will be disappointed not to have received specific help, such as business rates relief.”
Business rates – more to be done
Cooper continues: “Concessions for smaller retailers in this Budget (ie £1,000 discount for two years for shops, pubs and restaurants) were expected. However the Chancellor has failed to address the current freeze in rates for all other businesses.”
Annual Investment Allowances will fit retailers out in style
Cooper continues: “The increase of the Annual Investment Allowance to £500,000 will be welcome news for retailers looking to either refit their store or fit out new stores. Expect some shiny new additions to our high streets!”
Andrew Goodman, partner in the Private Client team at Taylor Wessing, said:
“The Chancellor set his face firmly against the “enveloping” of properties in offshore companies by reducing the threshold for the 15% penalty rate of stamp duty from £2m to £500,000. In truth, this is unlikely to make a significant difference to the market as his main claim, that these companies are used to avoid stamp duty, was wrong two years ago and remains wrong today.
“He may not feel too concerned – practically every corporate structure of this type was in place to avoid inheritance tax or provide anonymity – both unpopular in today’s climate.”
Commenting on the Chancellor’s debt recovery initiative, Phil Berwick, partner* at law firm Irwin Mitchell, said:
“The measures introduced in the Budget will increase the pressure on taxpayers. Granting HMRC direct access to a taxpayer’s bank account means that the taxman can jump to the front of the queue, and enable it to take priority over other creditors the taxpayer may have.
“The announcement of additional bands is a natural extension of the rules introduced last year. Taxpayers who thought they were ‘safe’ because of the relatively low value of their property will have to think again. Many will, I suspect, pay the charge, at least in the short-term. The delay in the introduction of the new bands will at least give taxpayers time to consider their options.
“The 43,000 taxpayers who are expected to receive accelerated payment notices will be in for a shock. They will have to find, collectively, and in many cases, individually, a large amount of money in a relatively short period of time.
“HMRC are pre-empting the outcome of litigation. HMRC’s position is that they don’t like taxpayers using avoidance schemes and the individual must pay the disputed tax before the Tribunal has reached a decision, or even considered the effectiveness of the arrangement. That is hardly justice. Legal challenges to HMRC’s position can be expected.”
HARBOTTLE & LEWIS
Glen Atchison, head of the private client practice at London law firm Harbottle & Lewis, said:
“The extension of Annual Tax on Enveloped Dwellings (ATED) to include properties valued at £500,000 upwards was a big surprise. This brings into charge many modest houses and flats (particularly in and around London), whose high value is a result of extreme price inflation.
“Many individuals hold residential properties through companies for historic, non-tax reasons, and some of those individuals may have little or no wealth other than what is tied up in the property. To ask those individuals to pay an annual tax of £3,500 or £7,000 seems very harsh.
“The ATED charge on higher value properties was seen by many wealthier individuals as a cost worth bearing when weighed against the annual increase in value of the underlying properties, and so structures were retained. In contrast, it is highly unlikely that those affected at this new lower end will take the same view to bear the ATED charge and so they will now need to seek advice on how best to unwind their structures.”