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Budget 2016 introduced plenty of new tax changes covering the full gamut.
Billed as the Budget for the next generation, the 2016 tax changes were not particularly focused. The tinkering impacting workers in north sea oil and gas to clapped out sports-persons enjoying their benefit season.
This note provides a summary of Budget 2016’s main tax changes:
Business and Company tax changes
Corporation tax will be reduced to 17% with effect from April 2020. This supplemented previous announcements which had already stated that this would a fall to 18% by the same date.
Companies ability to carry forward and offset losses against future profits will be restricted with effect from April 2017. A cap of allowing a maximum offset of 50% versus profits above £5m will apply.
In addition, Companies will broadly be capped at 30% of EBITDA. However, specific rules may exist for groups who might be able to use a group-wide ratio.
Intellectual Property (“IP”) was also in the cross hair. In this regard, UK withholding tax will apply to royalty payments for the use of intellectual property including trademarks and brand names. An important carve-out is that payments made under double tax treaties – or where EU Directives apply – will not be subject to any such withholding tax.
There were also amendments to the Employee Shareholder Scheme (“ESS”) – a relief which allows employees to acquire tax efficient shares in their employee in exchange for giving up their employment rights – effectively capping the value of benefits available.
Property tax changes
The previously announced 3% SDLT surcharge on the purchase of ‘additional properties’ was confirmed. The new SDLT charge has applied since 1 April 2016 and the draft legislation has been published.
Buy to Let investors will now have to bear this not inconsequential transaction cost in mind when acquiring new properties.
George Osborne turned his attention to Commercial property – which has remained relatively unscathed until this point. The slab basis of taxation now consigned to the tax dustbin. More significantly, a top rate of 5% on consideration above £250,000 will apply.
This could represent a significant increase in the effective rate payable on larger commercial property transactions.
Tax changes for Individuals
The higher and basic CGT rates will be reduced to 20% and 10% respectively.
However, the tax whipping boy that is UK residential property is excluded from this reduction. So is ‘carried interest’ for the private equity / investment industry. Where these two are the subject matter of a disposal then they will continue to pay CGT at the 28% and 18% rates respectively.
Class 2 NICs for self-employed individuals will be abolished from April 2018.
Also announced was an interesting extension to Entrepreneurs’ Relief (ER). This is for external investors who are not employees or directors and are making long term investments in unlisted trading companies.
Anti-avoidance and tax evasion
As one would expect, there were also plenty of anti-avoidance measures announced. In no particular order, these included:
Prevention of the avoidance by using Double Tax Treaties for non-UK resident property developers with UK projects;
Proposed tightening of salary sacrifice arrangements;
Targeted avoidance in relation to ‘disguised remuneration schemes’;
Corporate tax measures including hybrids, royalty payments, transfer pricing and loss relief;
Measure in relation to online VAT fraud in goods;
Further toughening over marketed tax avoidance;
Increased sanctions for offshore tax evasion