Top 20 tax partner breaks down budget and explores how it's going to boost UK businesses and increase productivity
BILLED as the Budget to “put stability first” and back the UK’s burgeoning SME base, the latest set of fiscal policies announced by the chancellor present a great deal of opportunity for business growth.
Led by a long overdue reduction in business rates, extension of entrepreneur’s relief as well as reductions in headline rates of capital gains tax and corporation tax, there is certainly a lot for business leaders and accountants to digest.
In an announcement which will arguably have the largest impact on business funding and widespread investment activity, the chancellor announced an extension to entrepreneur’s relief.
Previously, individuals were required to be employees of a firm with a stake of 5% or larger in the business in order to claim their £10m lifetime allowance, which is taxed at the much reduced rate of 10%. However, this is no longer the case, with this provision having been extended to all long-term investors with shares in unquoted trading companies.
This has the potential to pave the way for a new type of mainstream investment, encouraging individuals to fund small businesses, and in doing so reap the rewards of a reduced tax liability.
The purchase of shares in non-listed private companies could feasibly replace the purchase of property as the sound investment of choice, with the latter now being subject to an 8% CGT surcharge and increased stamp duty from April on second and rented homes.
By increasing the threshold for business rates relief from £6,000 to £15,000, as well as increasing the threshold for the higher band of business rates, the chancellor has reduced business rates payable for the majority of small businesses. This will serve to increase business confidence and encourage investment in staff and the pursuit of new contracts.
Capital gains tax
In somewhat of a surprise announcement, the headline rate of CGT is to be reduced from 28% to 20% for higher rate taxpayers and from 18% to 10% for lower rate taxpayers.
However, an additional 8% surcharge will apply on the proceeds of residential property sales. This move is likely to cause a short-term stalling of the deals market, as many business owners hold-off on selling their assets until this change is implemented.
Similarly, the surcharge payable on property investment will act to encourage individuals to hold on to their property, heating up the already simmering housing market.
The chancellor also committed to a further reduction in corporation tax, with rates now due to fall to 17% by 2020.
While obviously a positive move for the UK’s business community, this is a clever piece of posturing by the Chancellor and serves to act as a further carrot to attract foreign firms to locate here.
Richard Godmon is head of corporate tax at Menzies LLP