Unleashed from any coalition shackles and at the start of a new, five-year Parliament, George Osborne delivered a Budget full of reforms.
The big headline news for companies is the cut in the corporation tax rate to 19% from April 2017 and to 18% from 2020. This is partly compensation for the surprise introduction of a new compulsory National Living Wage which the government would like to see reach the level of £9 an hour by 2020.
More good news for companies is that the Annual Investment Allowance will be fixed at £200,000 annually from January 2016, providing welcome certainty for business planning.
Tax evasion and avoidance featured prominently in this Budget, with new funds for HMRC to boost its resources. Major changes are being made to the non-dom regime. The big news here is that permanent non-dom tax status will be abolished after 15 years’ residence in the UK – a move estimated to raise £1.5bn over three years. Another change is that individuals born in the UK to UK-domiciled parents will no longer be able to claim non-dom status themselves.
There was bad news for investment fund managers, who will no longer be able to benefit from particular rules which ‘shift’ capital gains tax base cost to them when carried interest entitlements are triggered. And due to concerns over the way personal companies use dividends as part of their tax planning, the dividend tax credit is to be replaced with a new £5,000 tax-free allowance and a series of set rates of tax on dividends, depending on income. This measure alone is expected to raise £2.5bn in 2016/17. Buy-to-let landlords will also take a hit through the capping of mortgage interest relief at the basic rate. Meanwhile banks will see staged cuts in the bank levy but a new 8% surcharge on bank profits from next year.
On a crowd-pleasing note, individual taxpayers will enjoy the increase in the tax-free personal allowance to £11,000 and in the higher rate threshold to £43,000. And as expected, the government is easing the inheritance tax burden for many, with an additional £175,000 allowance for family homes from 2017.
These are just a few highlights of a substantial Budget speech packed with surprises. I’m sure there’ll be a lot more detail and unexpected twists in the supporting documents.
Business Tax team
Private Client Tax team