With the EU Referendum only months away, it wasn’t much of surprise that this Budget was relatively non-eventful as far as middle England is concerned, with the Chancellor was obviously keen to not offend – or rile – either side of the divide.
I think it’s fair to say that it was more about tax tinkering, rather than it being a career defining Budget. The changes to the tax thresholds for low and middle earners are without doubt crowd pleasers and will help.
In our view, this Budget has certainly made things more complicated for business owners; especially if you consider the changes made to dividends last year and coming into effect in April.
As regards Capital Gains Tax, his headline announcement that it will drop to 20% (and 10% for basic payers) sounded great but there was also a lot of complexity introduced, with different rates for residential property and carried interest. There were some welcome amendments to Entrepreneurs’ Relief, some of which were undoing the overly tough measures he introduced last year, but some genuinely widening the relief to non employee investors in unquoted companies – a welcome boost for business investors.
The Chancellor also reinforced his attack on buy to let investors. Rather than backing away from the 3% stamp duty land tax surcharge he confirmed it and widened it to include larger investors.
The introduction of commercial property Stamp duty land tax banding is welcomed and echoes the change made for residential property last year. It will help the bottom to middle end of the commercial property market just as it did in the residential sector, so that can be applauded. The flip side to that is that larger commercial properties costing more than £1m just became more expensive.
This followed the news that the threshold for small business rate relief will rise from £6,000 to 15,000; again, it’s great news but only if his prediction that half of all UK businesses will either see a fall in how much they pay or will pay nothing at all.
Changes to Corporation Tax were widely expected. The Chancellor is trying to tread the fine line between making the UK attractive as a base for global businesses whilst making sure that those businesses actually pay a fair amount of tax in the UK. A range of measures to do this, along with a further planned reduction in the rate of corporation tax to 17% by 2020 should go a long way towards that. It will also be interesting to see how the changes will affect medium sized companies over the coming years, as that remains unclear and there is a danger that the reduced tax rate becomes outweighed by the burden of ever increasing complexity of the tax compliance burden for those businesses.
The news that the ISA limit will rise to £20,000 is positive as is the launch of the Lifetime ISA. They should, in theory, encourage young people to save. But my gut feeling is that this is the introduction of pensions ISA’s by another name and possibly another step towards the lump sum ultimately being abolished. Time will, however, tell.
The devolution of power to local government has been a cornerstone of Conservative policy for a while. George Osborne’s announcement that local authorities will be responsible for collecting rates but not setting them seems somewhat strange; especially when you look at the challenges around local fundraising including a potential drain of young talent to London/ the South East and an ageing legacy population that will need to be paid for.
Infrastructure and the Northern Powerhouse were the other two things that jumped out. The green light for HS3, a four-lane M62, a potential tunnel between Manchester and Sheffield to better connect the North West together with increases in flood defences should all be welcomed. All are long term projects, so need to be treated with cautious optimism.
To sum up, this Budget didn’t contain any major shocks and the Chancellor’s chants of low unemployment, the importance of staying in the EU and the fact that Great Britain has grown faster than any other major advanced economy this year were no surprise.
I think we’ll see a bolder Budget post 23rd June.
To view the full Budget commentary, please click the button below.
Jane Parry – Managing Partner & Head of Tax