Consequently, what we saw was a cautious Budget which tried to balance all these things; indeed Mr. Hammond referred to the need for balance on a number of occasions in his speech, albeit in the sense of a balance between fiscal responsibility and the need to help those in most need.
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A Budget that played safe
There were no changes of any note to Capital Gains Tax (CGT), Entrepreneurs’ Relief, which is now extremely generous, or to the big difference between CGT rates and top income tax rates (despite the continued exploitation of that difference by investors and company owners). There was no attempt to address the taxation of the gig economy (beyond announcing a consultation), or to address the ongoing mismatch between owner managers, the self-employed and employees in the Income Tax and NIC which they pay except for announcing another consultation. The system remains biased in favour of owner managers, hence the significant increase in tax-driven incorporations. The OBR forecasted earlier this year that tax revenues will be £3.5 billion lower by 2021 if the small company population continues to grow at current rates.
It was good to see no further attack on pensions, although this should not be ruled out for the future. Pensions, especially for higher and top rate tax payers, still represent the most tax-efficient savings vehicle available.
The headline grabber will be the Stamp Duty Land Tax (SDLT)exemption for first time buyers for properties up to £300,000 or the first £300,000 of properties up to £500,000. However, based on previous experience, this is unlikely to benefit first time buyers. The probability is that it will drive up demand and thus house prices and the winners will be those who sell the houses, not the first time buyers, who may pay more for their house because of the upward market pressure on prices.
Corporate Tax including R&D tax credits
Whilst the small increase in the rate of R&D tax credits from 11% to 12% is welcome, for companies many of the changes reflect the Government’s response to the proposals of the OECD and G20 on BEPS and cross border tax avoidance.
Tax avoidance, especially of the offshore variety, is in the news right now following the “Paradise Papers” revelations. The Budget contains a number of technical changes that will limit still further the ability of UK residents to avoid UK tax through offshore structures using payments to close family members instead of themselves. However there are continuing opportunities for non-domiciled individuals who have been resident in the UK for less than 15 years were not addressed. Other changes, plus further consultation on additional anti-avoidance measures (e.g. on a new measure to tax UK immovable property owned by non UK resident companies and individuals), demonstrate the Government’s continued commitment to countering (legal) tax avoidance as well as (illegal) tax evasion.
Overall the Budget can best be characterised as safe and non-contentious. The Chancellor had minimal headroom but he has not sought to increase that headroom through any major increase in taxation. Most tax thresholds have been increased in line with inflation, or, such as the £85,000 VAT registration threshold, left unchanged. The headlines will not be about tax, except perhaps the SDLT change for first time buyers and the continued attack on tax avoiders. The most pleasing aspect of the budget for private clients and business clients alike was probably what the Chancellor did not do; no changes of any significance to Inheritance Tax, CGT, Corporation Tax or VAT beyond a number of technical changes aimed at combatting tax avoidance techniques, particularly where offshore entities are involved.