Daniel Grainge LLB (Hons) FCA CTA
- Partner and Head of Tax
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Just 27 days after his surprise appointment as Chancellor, Rishi Sunak will deliver his first Budget.
So, set against the government’s stated intention to step back from austerity and increase investment, whilst not increasing the rates of income tax, National Insurance or VAT what can we expect from the first post-Brexit Budget?
Potential changes to Entrepreneurs’ Relief (ER) have been well documented following a pledge in the Conservative Party manifesto to review this valuable relief. I think that a wholesale withdrawal of the relief is very unlikely and would be disappointing given the government want the UK to be a nation of start-ups and successful scale-ups.
However, we may see some changes which limit its availability. In particular, the qualifying ownership period could be increased from its current 24 months, and a full-time working condition could be introduced to limit the relief to those working in the business.
The current Capital Gains Tax rate was not protected in the manifesto, and so we could see an increase from its historically low rate.
If ER is retained, we may see the tests for Inheritance Tax Business Property Relief (BPR) being aligned with the ER rules. Currently, in order to qualify for ER a business must be at least 80% trading, whereas for BPR the test is at least 50%.
If the rules were aligned it would become more difficult to qualify for BPR, particularly for those businesses with mixed trading and investment activities.
Also, I would not be surprised if BPR on AIM-listed shares is removed.
It has been a few years since the last major changes to pensions and given the press coverage about the impact of the current rules on NHS consultants some changes are expected. Higher rate tax relief may be withdrawn, to be replaced with a flat rate of tax relief. Alongside this, the tapered Annual Allowance could be changed or removed to prevent the tax charges on final salary schemes that that have hit the press.
Following our departure from the EU we expect to see a range of measures to encourage inward investment in the UK.
These could include more generous tax relief for research and development activities and extending the definition of qualifying R&D activities to include cloud computing and data.
A reduction in the headline rate of Corporation Tax seems unlikely, but there may be further incentives to encourage investment to increase productivity and efficiency of the UK workforce.
As usual, we will probably get a further raft of anti-avoidance measures and tougher penalties for those who break those rules. I am also expecting changes to Stamp Duty Land Tax to increase the cost of non-UK residents buying residential property in the UK.
As always there will be some surprises and given the large parliamentary majority the new Chancellor may be courageous and make some sweeping and unexpected changes to take us into the post-Brexit era.
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