Chris Sanger, head of tax policy, EY: 'The chancellor resembled ‘Michelangelo’ as he re-sculpted the UK tax system, taxing dividends, proposing changes to pensions, adding a new tax on banks, cutting corporate tax rates and restricting interest relief on buy-to-let investments.The chancellor went well beyond what many expected, spanning the whole tax regime, from non-domiciles to vehicle excise duty. He may not have listened to Lord Lawson's argument on abolishing the 45% income tax rate, but he clearly wanted to emulate his reputation as a man of principle and principled reform.'
Bill Dodwell, head of Deloitte's tax policy group: 'Budget rumours warned us to expect a major Budget – and so it proved. One hour and six minutes later, chancellor George Osborne had announced net tax rises worth nearly £5.8bn by 2020/21. He also announced £800m in new funding for HMRC – about £225mn annually. The headline measure is the increase in the national minimum wage to £7.20 per hour from £6.50 currently (and its renaming to national living wage). This will then increase to 60% of median earnings by 2020. Business receives support in the form of an increase in the employment allowance to £3,000 from 2016 and, from 2017, a cut in corporation tax to 19%, followed by a cut to 18% from 2020. Business investment also receives support in the form of a permanent £200,000 annual investment allowance (immediate tax relief for business assets) once the current £500,000 allowance finishes at the end of 2015. Large companies with profits over £20m will be asked to pay their corporation tax during the accounting year, though, which brings in about £8bn over 2017/19.'
Michael Izza, ICAEW chief executive: 'The big question that tax payers and businesses will be asking after this Budget is what does it mean for me? What it will inevitably mean is more regulation and tax law that everyone, including chartered accountants, will need to cope with. This is from a government that wants to simplify the tax system and reduce the regulatory burden. The government still has much to do to secure the long economic recovery and bring the deficit under control. It therefore needs to be doing more to support businesses by encouraging investment, growing exports and helping improve productivity.There was little detail in today’s Budget on how it intends to do this.'
Chris Morgan, head of tax policy at KPMG in the UK: 'There will be a mixed reaction from corporates to the chancellor’s Summer Budget. The drop in the corporation tax rate, going down to 18% in 2020, will be very welcome and while banks will see an 8% surcharge on profits as of next year this will be offset by the fall in the bank levy. There will be a large hit for large corporations in tax years 2017-2019 as the effect of the acceleration of tax payments comes through and, while this is a timing issue, it will be problematic for companies with cash flow difficulties. Additionally, while a number of anti-avoidance measures were announced, for example relating to the use of losses against a controlled foreign company charge or attaching a penalty to failing the general anti-abuse rules (GAAR), these, in reality, will affect very few companies. For smaller businesses the increase in the NIC threshold to £3,000 will be an incentive to take on more staff and the fixing of the annual investment allowance at £200,000 provides more certainty for investment. The big question for all employers though will be the compulsory national living wage to be introduced as of next year. Many companies already pay such a wage but for those in a sector that traditionally pays at the lower end, such as home care, retail, leisure or hospitality, the question will be to what extent the increased cost can be passed on to customers. The likes of retail and leisure industries may well profit from consumers having more money in their pockets as a result of higher wages and reduced personal allowances – but time will tell whether other sectors will see the same sort of benefit. Overall, today’s announcements represent a mixed bag for business but certainly more black and white than the previous Budget.'
David Brookes, tax partner at BDO: “The chancellor described this as a ‘big budget for a country with big ambitions’ but it largely bypassed medium sized businesses, the backbone of the UK economy.On the one hand the surprising reduction in the headline rate of corporation tax to 19% next year and 18% by 2020 was a positive move for businesses, as was the increase of the NIC employment allowance from £2,000 to £3,000. However, this will largely be offset by the introduction of the national living wage which may well have a significant impact on small businesses. We were pleased to see that the annual investment allowance for plant and machinery was set at a long term level of £200,000 per annum. The allowance is currently £500,000 but was due to reduce to £25,000 from 1 January 2016. Although we would have liked to see a more generous allowance this is still a significant incentive for businesses to invest in their future and hopefully go some way to addressing the UK productivity conundrum.'
Jim Meakin, Baker Tilly’s head of tax: ‘The chancellor’s "security first" Budget was far more significant than expected. He has shown real creativity in navigating around the triple lock, finding a number of areas for generating additional revenues while announcing some eye-catching measures such as the new living wage, designed to generate a feelgood factor about progress in the economy. Every corporate business is set to benefit from a continued reduction in the corporation tax rate which will reduce to 18% by 2020, however, this could be offset by higher costs for employers such as meeting the living wage requirement and the apprenticeship levy. In addition to the heavily trailed changes to the inheritance tax threshold which increases to up to £1m for a couple over their lifetime reflecting the value of a family home, the other significant announcement concerned buy to let property owners, who will be adversely affected by the abolition of relief for mortgage interest. There will also be a wholesale review of how dividends are taxed, the outcome of which seems likely to be that most recipients will be no worse off, and may be better off. However recipients of large dividends from private businesses and holders of large investment portfolios may well lose out.’
Iain McCluskey, tax partner at PwC: 'While not as radical as the chancellor made it out to be, the Budget was a 'thank you' to middle England for coming out to vote in May. Liberated from the coalition, the chancellor rewarded his core voters - baby boomers and pensioners - with a couple of drops of tax sweetener in their afternoon tea. The inheritance tax change to family homes will certainly have had many in the south cheering from their conservatories and patios. However, whilst many lower paid taxpayers will have been pleased with the slightly increased minimum wage, now rebranded as the 'living wage', the lack of substantial movement in the NIC lower earnings limit leaves many of the poorest employees outside of the income tax system but still liable for NIC.'
Sandy Bhogal, head of tax at Mayer Brown: 'This proved a difficult Budget to predict in many ways, and with DPT implementation proving cumbersome and BEPS implementation likely to consume resources in 2016/17, the government has taken the opportunity to rebase parts of the tax system and thereby facilitate significant net tax rises. The financial services sector has again been targeted, with the proposed introduction of an 8% surcharge on banking profits aligned with a gradual reduction in the size and scope of the bank levy (further complemented by the announced reduction in corporation tax). The insurance industry will also have noted the rise in the standard rate of insurance premium tax to 9.5%. The funds industry will be bracing itself for the proposed consultation on performance rewards for managers and potential increased CGT charges on carried interest structures. One of the aims of the consultation seems to be exploring whether a statutory basis for determining whether a manager’s interest in the performance of fund assets is investment or trading could be possible. This will be interesting to monitor, particularly as it may have wider ramifications for the tax code.'
Kal Siddique, tax partner at EY: 'While the government has ignored aviation and travel industry pleas for a wholesale review of the APD regime in the UK, it has issued a discussion paper that considers various options such as devolving APD within the English regions, varying APD rates across English airports and also providing aid to English regional airports. This is set against the background of APD devolution to Northern Ireland, Scotland and possibly also Wales, with an SNP proposal to reduce APD by 50% from Scottish airports. The Treasury is reacting to concerns raised by English regional airports about collateral damage from possible APD rate reductions at nearby airports in Scotland or Wales, but this also raises the spectre of a compliance nightmare for airline operators who will need to administer multiple APD rates within the same country with extensive system changes required and re-pricing of flights. As it stands we already have 6 rates in the UK and could end up with more than 20.'
Earl Yardley, Industrial Vision Systems: 'The announcements made at the Summer Budget provide a positive outlook for UK manufacturing. The more investment and tax breaks within this space, the more stability there is for key industries, such as pharma, medical device, and automation, which, in turn, will also enhance the performances of UK engineering firms. The chancellor should be applauded for fixing the annual investment allowance (AIA) for capital allowances at £200,000. We have already seen a significant increase in investment made in new automated production lines and cells across the UK manufacturing base. By establishing a long term rate, this is sure to boost productivity and help leverage the UK at the forefront of the global manufacturing sector.'
Vince McLoughlin, Russell New: 'Osborne, and rightly so, had to outline more plans to tackle tax avoidance and aggressive tax planning by the rich. He will face little opposition from the business community - specifically to his plan to raise over £5bn from targeting evasion and “aggressive” avoidance. Confirmation that the annual investment allowance (AIA) for capital allowances will be fixed at £200,000 is a relief for the business community. By committing to a long term rate, Osborne has provided stability and consistency for firms that like to plan and invest for the long term, many of which may have delayed their investment plans up until this announcement. Confirming that the rate will be kept at this higher level will kick-start the kind of investment needed to enable businesses to thrive.'
Clive Lewis, head of enterprise at ICAEW: 'We are delighted that the Chancellor has listened to our call to reaffirm the annual investment allowance - albeit at £200,000, and not £500,000. Keeping this level for the duration of parliament will provide stability and consistency to firms that like to plan and invest for the long term, and would kick-start the kind of investment needed to boost our productivity in the medium term.'
Frank Nash, Blick Rothenberg: 'There is no apparent logic in the fluctuation of the annual investment allowance in recent years. It’s as if the chancellor rolls two dice and adds some noughts on the end. If the £500,000 allowance was good last year, why not continue with it?'
Tina Riches, national tax partner, Smith & Williamson: 'Tax avoidance and aggressive tax planning remains in sharp focus. HMRC is to demand strict compliance to tightened rules, with investment in its teams, which are to further track down tax avoidance and aggressive tax planning. Business owners and HNWs will be specifically targeted. The introduction of direct recovery of debts and greater use of naming and shaming for those who transgress the rules will be used. Top earners will feel the pain with a mix of reductions to tax relief and a hardened approach to ensure the wealthiest continue to pay the lion’s share of tax. The chancellor announced targeted measures to curtail tax avoidance and reductions in pension tax relief. Coupled with the tightened rules for landlords with buy to let properties, individuals will need to put an even greater emphasis on tax compliance.'
CIOT tax policy director, Patrick Stevens: 'In the past, governments have announced each year how much tax receipts are going to be increased by tackling evasion and avoidance. Many of the changes made are then simply changing tax rules rather than closing down some abuse of the system. So many rule changes and demands for action have been referred to as anti-avoidance, nobody really knows what the phrase now means. In this respect today’s Budget is a step forward. As well as stopping evasion and avoidance, the chancellor is now "rebalancing the tax system" to get a result that he thinks is fairer. This is helpful as he is no longer referring to many old activities as avoidance. He is just changing his mind about what he thinks the rules should say. It is to be hoped that more transparency in this area will make it clear that many activities of taxpayers, complained about by politicians, are not avoidance but a previous policy someone did not like. This new category of tax changes will contribute to the promised £5bn a year of additional compliance revenue by the end of this Parliament. Some will question whether this moves the goalposts in this area to bring in changes most would consider simply tax increases.'
Chris Bates, tax partner at Norton Rose Fulbright: 'Addressing aggressive tax planning continued as a theme in the chancellor’s budget for individuals and businesses alike, but it no “rabbit out of the hat” as we have seen in the past, most recently in the diverted profits tax. Further measures announced include extra investment for HMRC’s work on tax planning and non-compliance and tripling the number of criminal investigations HMRC can undertake into complex tax crime. The devil is in the detail however, which we are yet to see.'
David Pickstone, head of tax litigation, Stewarts Law: 'The Budget clearly indicates the government’s intention to continue to aggressively pursue those that they consider to have in some way evaded or avoided paying what HMRC maintains is the “right amount” of tax. The government’s stated goal is to recover £5bn from tax avoidance / evasion. A large proportion of this will presumably come from accelerated payments on disputed tax liabilities and large interest payments on now very old liabilities. It is debatable whether the government’s and HMRC’s approach to these historic liabilities is fair, as the end target is often an individual who thought (rightly or wrongly) that they were entering into a legitimate structure and are now in a very different financial position to the one they were in when they entered the schemes. More tax-driven insolvencies are likely to be on the agenda. The increased hostility to what was previously considered to be legitimate tax structuring is not going to drop down the government’s agenda. Increased responsibilities being placed upon financial intermediaries to inform their UK resident customers with overseas accounts of their obligations to disclose under the Common Reporting Standard; the further expansion of the DOTAS regime, including the increase in penalties for those who do not comply; and the implementation of further legislation to target those the government consider to be “serial avoiders” of tax are all evidence of a crackdown on those who seek to reduce their tax bill.'
David Brookes, tax partner at BDO: 'The chancellor previously said he was planning to raise £5bn from tax evasion and avoidance. This seems an optimistic target in the context of the sustained focus on tax avoidance in the previous parliament. However, the surprise move by the chancellor to committing £750m of additional resource to HMRC will help in achieving this target. This is a return to the ‘spend to save’ policies of previous governments and, on the surface, seem like a sensible move. However, our concern is that HMRC may direct these extra resources to easier targets by enquiring into the affairs of law abiding taxpayers who may have made innocent mistakes.'
Shiv Mahalingham, transfer pricing economist at Duff & Phelps: 'The additional anti-avoidance measures announced may further complicate an already complex system.'
Stella Amiss, tax partner at PwC: ;The government's manifesto had a much trailed target of £5bn from tackling tax avoidance. In the Budget the chancellor increased the target to £7.2bn but the description has changed to anti-avoidance and compliance. The target revenue will come from a raft of measures, including an additional £800m of investment in HMRC. The strategy seems to be about HMRC recouping more from every day compliance, rather than an expectation that the new anti-avoidance measures will raise significant sums.'
Frank Nash, Blick Rothenberg: 'Contrary to popular belief, the Conservatives have introduced more laws to counter tax evasion in the last 5 years than all governments over the last 25 years.'
Frank Haskew, head of ICAEW Tax Faculty: 'Significant progress has been made in the last parliament to tackle tax avoidance and the Government has started to get on top of tax avoidance, especially through the introduction last year of accelerated payment and follower notices. We need to make sure that further measures are properly targeted so they do not increase costs and burdens on legitimate business activity and growth.'
Heather Self, partner at Pinsent Masons: 'The manifesto commitment to raise £5bn a year from avoidance and evasion has been met by widening the definition to include “imbalances in the tax system”. For example, almost £1bn a year comes from removing the climate change levy exemption on renewable energy.'
Bill Dodwell, Deloitte:'The banking sector has asked for changes to the bank levy – and the government has agreed. The asset-based levy will reduce from 0.21% currently to 0.1% by 2021 –and will then apply only to UK operations. However, banking profits will face an 8% surcharge from 1 January 2016. It is better to charge tax on profits rather than on balance sheet size and the changes should support UK banking activities.'
Danny Beeton, transfer pricing economist, Duff & Phelps: 'The rhetoric against the financial services industry has been dialled down in recognition of the importance of this industry to UK growth and productivity. The measures to reduce the bank levy over time may stop a significant number of financial transactions migrating outside of the UK. The movement from a bank levy to a surcharge on bank profits seeks to restrict any negative impact on financial transactions and instead tax institutions.'
Matthew Barling, PwC banking tax partner: 'The reform and reduction in the bank levy will be welcomed particularly by those banks with large overseas operations. However, the long term phased nature of the reform coupled with the new profits based 8% corporation tax surcharge means that the overall tax burden on the banking sector will go up during this Parliament. This sends very much a mixed message in terms of competitiveness of the UK as a place for carrying on banking business.
Anna Anthony, EMEIA head of financial services tax at EY: 'A reduction in the rate and scope of the bank levy will be very welcome news for the sector, and can be seen as an acknowledgement from the government that the UK does need to remain a competitive location for global financial services companies. The introduction of an 8% surcharge sounds high, but is likely to be more acceptable than the levy because it at least has a direct link to the profitability of an institution. In addition, the fact that overall corporation tax is going to go down also helps ease the pain for banks of the surcharge. The banks will await with interest details of how the reduction of bank levy over six years will interact with the introduction of the surcharge on 1 January 2016, to determine whether they will be better or worse off in the short term.'
Dana Ward, head of financial services tax at Grant Thornton: 'The chancellor's announcement on the reduction of the bank levy will no doubt be welcomed by major banks, including HSBC, and UK business generally. The proposals to introduce a surcharge on profits is much more aligned with OECD fiscal policy of levying tax where profits are generated, rather than levying tax on a balance sheet basis which, frankly, acts as a disincentive to major banks doing business in the UK.'
The expectations of a real modernisation and simplification of the business rates system were raised again in the Budget. Simon Tivey, head of rating at PwC: 'Consultation fatigue is now setting in with yet another set of questions being directed at businesses, representative bodies and local authorities. Ratepayer forums will also be set up to consider how to reform the overloaded appeals system. The targeted reliefs introduced over the last few years, notably to help the retail sector, have been welcome in boosting the high street and tackling vacant shops. A new relief for local newspapers will help them move from heavily-rated properties, but how many one-off reliefs can the system bear? These reliefs are administered by councils under their discretionary rating powers and they already have the ability to identify and help ratepayer groups in need of support. That said, the government initiative will provide some focus.'
Nimesh Shah, Blick Rothenberg: 'The chancellor announced that tax relief for individual buy-to-let landlords will be restricted to the basic rate of tax, and this will be phased in from 6th April 2017 until relief is completely restricted to the basic rate by 2020/21. The Treasury projects this measure to raise £665m by 2020/21. What’s interesting is that the restriction applies to individuals owning properties and companies are not affected. With a further reduction in the main rate of corporation tax, companies may become even more popular structures for buy-to-let landlords.'
Robert Walker, PwC real estate partner: 'Today's changes do nothing to address the fundamental lack of supply in the UK housing market and ultimately may backfire and hit people who are having to rent. We could see buy-to-let investors feeling the squeeze and putting up rents. This would have a major impact on 'generation rent'. Moreover, if interest rates increase over the coming years, and rental yields don't keep pace, investors could be paying tax on a loss. Pensioners wanting to make the most of the recent savings freedoms could now be rethinking what they do with their pension pots. The chancellor is concerned about the level of funding in the buy-to-let market but today's proposals don't tackle this head-on. Some form of regulation or safeguards will be needed to avoid excessive buy-to-let mortgages, otherwise these changes will only fuel the current housing problems.'
Russell Gardner, EY’s UK head of real estate: '“The changes to buy-to-let will raise almost 2/3 of a billion by 2020, but will impact only a very narrow group. It hits UK individuals rather than professional outfits or non-residents. Landlords need to be both a higher rate income tax payer and a UK resident to be within scope, and at HMRC’s own estimate it will only hit 1 in 5 of individual landlords. This is unlikely to take much of the heat, including that generated by overseas buyers, out of the residential property market. The chancellor has also raised £200m in 2016 by removing the 10% exemption from wear and tear potentially replacing it with a relief for some actual costs. While all this may marginally dampen down buy-to-let as an investment proposition for the middle classes over time, we doubt people will sell. Despite the changes, buy-to-let still remains quite an attractive part of a broader investment portfolio.'
Brian Slater, chair of the CIOT’s Property Taxes Sub-committee: 'It is vital that adequate resources are devoted to explaining and publicising these quite complex changes that will affect a very large number of smaller landlords. Previous changes to the tax rules for deducting the cost of providing white goods such as free standing fridges, cookers and soft furnishings were introduced without adequate publicity. Inadequate information leads to inadvertent non-compliance and confusion.'
Ronan O'Regan, director, PwC energy and utilities: 'The removal of the climate change levy (CCL) exemption will reduce the level of support for renewable projects. CCL is paid by business and public sector customers but can be offset by a levy exempt certificate (LEC) earned by renewable energy projects. This will prevent non-UK renewable projects earning earning LEC revenue from selling their renewable energy in the UK. It will also impact existing UK renewable energy generators reducing their revenues today (5% for an onshore wind project), although the value of this revenue stream was expected to reduce over time as the market becomes over-supplied with LECs.'
Commenting on the announcement that exemption from CCL (the energy tax charged on supplies of gas, electricity and other energy products to business) is to end on 1 August 2015, Daniel Lyons, indirect tax partner at Deloitte, said: 'Since its introduction, climate change levy (CCL) has differentiated between electricity generated from renewable sources, and electricity generated from carbon fuels. Today’s announcement brings an end to the CCL-free treatment of renewable source electricity and once stocks have been consumed, future supplies of electricity will (with a few exceptions for certain energy intensive industries) attract the full rate of CCL. This measure is part of a change of focus by the government from providing support for renewable source generation indirectly, through CCL exemption, to a more direct approach, by entering long-term agreements with generators to guarantee future energy revenues. The government is also concerned that the financial benefit of CCL exemption has increasingly been available to offshore generators. This measure will bring that to an end. Market demand has meant that the cost of CCL free renewable source energy has been about the same as the cost of energy generated from carbon fuels and subject to CCL. This measure may have little impact on energy costs.'
David Hill, head of treasury tax, Grant Thornton: This measure updates the rules governing the taxation of loan relationships and derivative contracts by making changes to the computation of profits and losses on these instruments and the rules by which they are taxed. The major change is that taxation will be based primarily on amounts recognised in the profit or loss account rather than those recognised anywhere else – for example, in reserves or equity. In addition, the requirement that amounts to be brought into account for tax must "fairly represent" the profits, gains and losses arising, has been removed. These changes will be brought in from 1 January 2016. In addition, there are two other key changes which will have effect on or after royal assent of the Summer Finance Bill 2015, being:
The changes to the loan relationship and derivative contract rules highlighted in the measure have been developed over two years since the consultation document was originally issued. After the delay caused by the general election, it is good to see these changes being included in the Finance Bill. The targeted anti-avoidance rule may create some uncertainty for taxpayers as it relies on a purpose test, and similarly, certain conditions for the debt relief provisions feel subjective. It will be interesting to see how these and the other changes take effect in practice, and whether they achieve the simplification of taxation of corporate debt and derivative contracts, as intended by the measure.'
Chris Sanger, EY: 'Businesses were left with mixed messages from today's budget. The promise of cuts in corporation tax rate from 2017/18 was tempered by large business being the biggest funder of the chancellors' budget through the requirement to pay taxes 3 months earlier. This measure alone gave the chancellor almost £4.5bn in 2017/18 and echoes the change that Gordon Brown introduced in his first Budget, back in 1997. On a positive note, this cash flow raid also allowed the chancellor to fund the rise in the annual investment allowance to £200,000.'
Tina Riches, Smith & Williamson: 'The chancellor’s plans to accelerate the date corporation tax payments are due where profits exceed £20m for periods starting after 1 April 2017, will help boost the rate of cash flowing into the exchequer. The mirror image is an adverse impact on cashflow for larger corporates who will need to monitor their cashflow forecasts more carefully.
Heather Self, Pinsent Masons: 'Business will welcome the reduction in the rate of corporation tax to 18%, which the CBI called for in its submissions during the Coalition Government. However, the receipts from bringing forward the quarterly instalment payments more than outweigh the costs – under government cashflow accounting, receipts of £7.6bn are recorded in the two years from 2017, while the reduced rate has a total cost of £6.6bn over the forecast period.'
Stella Amiss, international tax partner at PwC: '[The announcement of future CT rate cuts] is a bold and surprise move. Business weren't calling for a further rate reduction, and it's expensive - £6.6bn over five years. But it sends a clear signal that the government is pro tax competition and this message may be helpful in attracting overseas business to UK shores. The anti-avoidance measures for corporates were relatively piecemeal - tinkering around the edges rather than making a big difference.'
Shiv Mahalingham, Duff & Phelps: 'The proposed reduction in the corporation tax rate to 18% brings the UK into competition with the statutory rates in Switzerland, Singapore and Hong Kong (and some Eastern European jurisdictions). This is a welcome change that will continue to bring foreign direct investment into the UK and dissuade businesses from relocating operations outside of the UK.'
Jonathan Hornby, Alvarez & Marsal Taxand: 'Corporates will have plenty of time to get their heads around the changes made to corporation tax payment dates. However, companies already often find they have over or under paid when their tax returns are submitted. Accelerating payment dates will only make forecasting less accurate and more tricky. Companies are also unlikely to have reliable forecasts produced for other purposes at such an early point. Essentially, this makes making accurate payments much more difficult. There’s currently no signs that the system will align more closely to income tax by allowing a use of previous profits to set tax payments. This would certainly be welcome. The lowering of corporate tax comes as a surprise. One potential impact is that this will be a disincentive to foreign investors. The low tax rate triggers anti-avoidance rules in the countries that still have high tax rates. We have already seen Japan react to prevent these avoidance rules from applying when the UK rate dropped to 20%. It remains to be seen if they will do so again.'
Stephanie Hyde, head of regions and executive board member at PwC: ;For companies across the UK, the prospect of the annual investment allowance falling to £25,000 may have hamstrung investment and damaged the economy. Now the chancellor has announced a ceiling of £200,000 it will take some of the pressure off small and medium-sized business when planning investment. This, coupled with the chancellor's efforts to keep the engine of the Northern Powerhouse firing on all cylinders is a shot in the arm for the UK economy. We have also seen a sustained push in this Budget to 'share the wealth' by devolving powers and budgets to boost local growth. Decentralisation is critical to the UK’s economic rebalancing across the regions. Too much centralisation leads to unbalanced growth and creates economic issues of its own. By moving more powers out of Whitehall, it will give the regions the tools to accelerate that process.'
Stephen Ibbotson, ICAEW director of business: 'There finally is some detail on Northern Powerhouses with powers given to councils, additional enterprise zones and planning reforms. Whether this could be described as helping to create a ‘power house’ is debatable.'
Richard Morley, partner, BDO: 'Although not mentioned at all in the chancellor’s speech, today it has been formally announced that HMRC will be given the powers to directly collect tax debts from an individual’s bank and building society accounts. The absence of any mention suggests the government was trying to sneak in this very unpopular policy, through the back door. It was originally announced in the 2014 Budget and will be applicable for tax debts over £1,000; this threshold suggests HMRC will be catching more than “big time” tax avoiders in its net. As part of a number of safeguards to be put in place taxpayers will be given the right to appeal through the courts before outstanding debts are removed from their accounts. Yet, despite this, as it pursues this policy, HMRC is going to need to reassure people that innocent taxpayers will not be caught out. If an individual has a joint bank account which holds £10k, and is shared 50:50 with a partner, HMRC is able to take up to £5k. However, a lot of questions still remain around whether the hardened debtor, who is likely to keep funds offshore, will be caught. HMRC can only seize money from UK bank accounts making it harder from them to get hold of funds outside the UK banking system. The devil is in the detail and it remains to be seen how this announcement will play out in practice.'
Alex Henderson, tax partner at PwC: 'The changes to the taxation of dividends remove the final vestiges of the system introduced in the early 1970s where a credit was given for tax paid by the company. The system aimed to relieve the impact of the double taxation of companies and shareholders on distributed profits. Overall the chancellor is expecting to raise £3.5bn from the change over the next 5 years. There are going to be some big losers as a result of this change. Entrepreneurs who pay out dividends in companies they own will see their tax rate increase by nearly 20% to 38.1% which is on top of the 20% paid by the company. It remains to be seen what effect this tax rise will have on enterprise. One consequence is that it become relatively more attractive for entrerpreneurs to sell up their business and retire as it could reduce their tax rate by between 10 and 18%'.
Tina Riches, Smith & Williamson: 'The proposed radical change to the dividend regime, due from 1 April 2016 to provide a tax free allowance of £5,000pa and less favourable tax rates of up to 38.1% for higher rate taxpayers, is likely to have a significant impact on tax-incentivised incorporation of businesses. The system, designed in tandem with the reduction in corporation tax rates, will lead to a more level playing field between business owners irrespective of the vehicle they trade through.'
Genevieve Moore, Blick Rothenberg: 'Personal service company owners attacked by new tax on dividends. A raid on the consultants who have taken advantage of low corporation tax rates. It was expected!'
Tim Stovold, Kingston Smith: 'Under the heading of simplification, the effective rate of corporation tax and income tax combined increases from 40 to 46% for a higher rate tax payer and similar increases for basic rate payers. This will encourage companies to pay large dividends in preparation of the increased rates applying which will give the chancellor a bumper tax collection in 2015/16 as dividend payments are accelerated.'
Mark Abbs, Blick Rothenberg: 'Discouraging entrepreneurial activity and enterprise by increasing the tax on dividends is the wrong thing to do at a time when we need the government to be doing everything it can to support and incentivise the small businesses that are the powerhouse of the UK economy.'
Craig Simpson, Baker Tilly’s national head of corporate tax: 'Fewer tax advantages for dividends? The chancellor has announced a major attack on the profit extraction strategy of small and medium sized businesses owners. On the one hand the reduction in corporation tax rates to 19% from 2017 and 18% 2020 will likely be offset by increases in dividend tax rates leaving the director shareholder worse off in most cases.
'Equalising benefits: The new rules are designed to move towards equalising the benefit of taking dividends rather than salary and have been highlighted due to the progressive lowering of corporation tax rates over recent times. Details of the new rules are sketchy at this stage but we know they will take effect from 6 April 2016 and revised rates of taxation have been announced.
'Situations it will impact: Under current rules it is common practice for a shareholder director to have a mix of salary and dividend. The main reason for paying the dividends being that in all cases the dividend is cheaper from a tax perspective than paying a bonus. For example, a small company which is owned jointly by a husband and wife where the corporate tax profits are less than £300,000 and the dividends paid to the shareholders are less than the higher rate income tax threshold would only pay corporate tax on the profit earned in the company and no additional income tax. In these circumstances the profits are taxed at an effective rate of 20% (i.e. just the corporate tax). Compare this to taking salary instead and the marginal rate on £1 of profit earned and extract jumps to just over 40%. For those subject to the higher and additional rate of income tax the differential in tax marginal tax rates per £1 of profit are lower but broadly the saving is around 9% when paying a dividend compared to salary.
'A balancing act: The changes announced today are aimed at in part correcting this imbalance but at first sight it seems that the changes will not completely remove the advantage to paying dividends. As at time of publication the Budget Tax Impact Note has not been published which might suggest some confusion within the Treasury.
What do we know? The new rules will introduce new dividend tax rates from 6 April 2016. The rates will be:
Income tax banding New rate Existing rate*
Basic rate 7.5% 0%
Higher rate 32.5% 25%
Additional rate 38.1% 30.56%
*rate of dividend net of 10% tax credit
'The rules will also include a £5,000 dividend exemption. It is not clear at this stage whether this will apply all dividend income irrespective of the amount received in a tax year or whether the £5,000 exemption is withdrawn if dividend income is above that level.
'What it means: On the face of it a 7.5% increase in income tax for shareholders in a private business will be very unwelcome and whilst it may be an attempt to correct an imbalance it is still a real tax increase. Whilst falling corporate tax rates are welcome, increasing taxes on extracting income will be a bitter pill to swallow for many. It is hard for that not to be seen as an attack on entrepreneurialism and enterprise for small and medium sized businesses who likely view the tax breaks from paying dividends as a way of correcting and imbalance for taking risk in setting up their own business and employing people.'
Matt Hall, head of tax, Wilkins Kennedy: 'These latest announcements will hit entrepreneurship where it hurts because there will be no incentive to grow a business into a larger organisation as those who receive significant dividend income will pay more. An entrepreneur with profits of £100,000 will see their annual tax bill increase by over £3,500. Small business already feeds the economy and are significant contributors to their communities as they create wealth and employment as they grow. Therefore to target them with further taxes could see entrepreneurship in the UK take a nosedive.'
Dermot Callinan, head of private client at KPMG: 'For the government to target almost £7bn in revenues from changes to the tax treatment of dividends, today’s announcement clearly represents a significant tax increase for people with high incomes. While a million people who receive dividends will see an effective £5,000 tax free allowance, the changes will increase top rate tax payers’ contributions by at least 25%. For all that, the chancellor wants to encourage saving, the new tax structure could discourage many high income investors from doing so. Savers should remember, however, that they can still receive up to £15,240 tax free through ISAs.'
|
|
Marginal (top) tax rate of income tax |
||
|
Tax rate |
20% (basic rate) |
40% (higher rate) |
45% (additional rate) |
|
Effective dividend tax rate now |
0 |
25% |
30.56% |
|
Post April 2016 (after £5,000 allowance*) |
7.57% |
32.5% |
38% |
* £5,000 allowance is equal to a 3.5% dividend on shares worth £140,000
John Hawksworth, chief economist at PwC: 'The chancellor has decided to end austerity a year later than planned in his March Budget, but with broadly the same end point of a small budget surplus by 2019/20. This results in a smoother profile of real spending cuts, which is sensible in allowing affected government departments, local authorities and households more time to adjust. But there is still a lot of pain to come. Welfare cuts totalling £12bn by 2019/20 will weigh heavily on lower income working age households, although the new national living wage will offset this for some workers. Unprotected government departments and local authorities will face a further Parliament on basic rations. Restricting public pay growth to 1% per annum for the next four years may be needed to get the deficit down, but will pose challenges in attracting and retaining talent to the public sector over a period when private sector earnings are likely to be growing at around 3-4% per annum. It is prudent for the chancellor to aim for a budget surplus as a buffer against future economic shocks at a time when initial public debt levels are high due to the legacy of the financial crisis. But it may not be sensible to aim to run overall budget surpluses indefinitely as this could unduly restrict the scope for the longer term public sector investment that Britain needs to strengthen its national infrastructure.'
Andrew Sentance, senior economic adviser, PwC: 'The Budget has set out in more detail how the chancellor will achieve a reduction in borrowing that he promised before the election. So for the financial markets and businesses, this provides stability and maintains consistency with the financial plans we have seen over the last five years. For business, there are swings and roundabouts. Corporation tax will be cut further. But by introducing the new national living wage, the chancellor is shifting some of the burden of supporting low income households from the public purse to employers.'
Mark Gregory, EY’s chief economist: 'The OBR's forecasts show the gamble implicit in the chancellor's Budget. With a fiscal squeeze - albeit slower than forecast in March - no expectations of a boost from trade, and a slowdown in consumer spending growth as welfare cuts bite, the chancellor needs productivity to accelerate to drive growth. The OBR's scenarios show that if productivity remains at the level of recent history, GDP will grow a third more slowly than under the base case of improving productivity. The OBR forecasts export growth of around 4% a year for the rest of this decade. UK exports might reach £650bn with a following wind but it will be a long way short of the magic trillion pound target.'
Ross Campbell, director of public sector at ICAEW: “While it is naturally good practice for the government to run a surplus when the sun shines, governments sometimes need the flexibility to run a deficit when circumstances demand. Our politicians and civil servants have a duty to act in the public interest. It seems an extraordinary proposal to legislate to constrain the fiscal policy choices of future elected governments, and one which looks more like a political manoeuvre than being about sound management of the public finances.'
Commenting on news that the employment allowance, will be increased to £3,000, Natalie Miller, president of the ATT, said: 'The government’s commitment to increasing and extending this allowance is welcome news and will provide a boost to businesses seeking to alleviate what can be a significant cost involved when taking on an employee. This is a positive contribution to the UK’s economic recovery. There has been concern voiced over the abuse of the employment allowance through the use of various schemes, which HMRC is working to combat. The government now intends to prevent businesses whose only employee is the sole director from claiming this allowance from 6 April 2016. The policy behind the employment allowance has always been to encourage and support businesses in recruiting staff, and not to help individuals to subsidise their own personal tax liabilities, so we think this is a fair move. Despite these concerns, this announcement proves that HMRC and the government are still keen to develop the positive outcomes that arise from this allowance. The increase to the allowance will also assist employers when the new national living wage becomes compulsory as this would be likely to increase employers’ costs otherwise. The increase in the employment allowance ought to now make the situation tax neutral and not deter any employer from recruiting the same amount of staff as under the current national ninimum wage.'
Jonathan Grant, director, PwC sustainability and climate change: 'There's not much in this budget that is new in supporting low carbon investment and transition. But the chancellor did highlight the government's support for a 'two degrees' deal in Paris later this year. We can't underestimate how ambitious this target is and the scale of shifts in energy and transport infrastructure required to achieve it. The changes needed are so rapid, they make the 'dash for gas' look pedestrian. We didn't hear much that was bold or brave to support the scale of change in infrastructure that two degrees implies. The Budget contains a mix of short-term measures, such as changes to the climate change levy and the sale of the Green Investment Bank, but not the long-term vision which many people wish to see.'
Neal Todd, partner, Berwin Leighton Painser: 'The combination of the chancellor's amendment to the non-domiciles rules coupled with the changes to the capital gains tax treatment of returns from investment funds will be a matter of concern for those working in the funds industry. The government went out of its way in the last Parliament to encourage funds to come on shore. It is to be hoped that today's measures will not detract from the attractiveness of the UK as a location for fund management.'
Neal Todd, partner, Berwin Leighton Paisner: 'It is disappointing that the chancellor has seen to fit to introduce penalties for tax planning that falls foul of the GAAR. The GAAR has only recently been introduced to the UK tax system (it became law in 2013) and its ambit is wide and uncertain. No case involved in the GAAR has yet come before the UK courts and it seems very premature for the government to be adding back bone to a weapon that has yet to be judicially tested.'
Tessa Lorimer, Withers: 'The government has decided to give the GAAR some teeth, no doubt arising from criticism previously levelled at the rule. Having given the public some time to familiarise themselves with the GAAR, the government clearly thinks now is the time to review it and strengthen its deterrent effect with a specific penalty.'
Heather Self, Pinsent Masons: 'Removing tax allowances on goodwill for acquisitions from today is a nasty surprise. The regime for taxation of goodwill has been in place since 2002, and such a sudden change is not justified for a measure which addresses an “imbalance” in the tax system, rather than aggressive avoidance.'
Commenting on plans to remove tax relief for goodwill and other intangible assets acquired by companies with immediate effect, Matt Hall, Wilkins Kennedy, said: 'The tax relief abolishment will have a knock on effect because businesses will no longer be able to claim relief against corporation tax – until the business is eventually sold. This is bound to have several implications and will be an unexpected, unwelcome result for businesses that are looking to sell. This could impact businesses looking to sell up in the short term and could even stall transactions that are in process.'
Stephen Hemmings, corporate tax director at Menzies: 'The restriction on the tax deductibility of purchased goodwill was one of the unexpected announcements, and could impact on the way transactions are structured from today. Amortisation of goodwill acquired on a trade and assets purchase will no longer be an allowable debit for corporation tax purposes. This means that the tax treatment will no longer follow the accounts where amortisation is recognised in the accounts, and where it is not, there is no longer the irrevocable election available of 4% per annum straight line tax relief. This will apply to accounting periods beginning on or after 8 July 2015. Relief will only be available going forward on a future onward disposal. This will be treated as a non-trade debit.'
David Kilshaw, EY's head of private client tax: 'The headline grabbing change - no IHT on homes up to £1m - will rightly be welcomed by homeowners. But these changes are complex. The chancellor’s changes conjure visions of “Addams’ family mansions” passing down the generations but the real monster here is the complexity. The present system is simple and works – the changes mark an unnecessary level of complexity. A straight forward £1m inheritance tax exemption would have been preferable. For most people the changes will have little impact given house prices across the UK. In reality the chancellor has simply introduced a “home counties IHT band”. The very rich will not benefit, due to the cap on the relief, and nor will many homeowners where their house is below the existing limits. The key message to homeowners in the £1million band is make a Will today if you want to ensure your home passes tax efficiently upon your death.'
Jo Bateson, private client tax partner at KPMG: 'This move on IHT was expected and is welcome. However it was a bit of a surprise to see that it is being phased in such that it won’t be implemented in full until 2020 and also that only direct descendants of married couples or those in civil partnerships with family homes will benefit. The basic, conventional ‘nil rate band’ of £325k has been frozen until 2021. The detail published today provides more clarity in particular that the £1m will be phased in over the next 4 years which is illustrated in the table below. The relief is available for those who downsize or cease to own a home from today's date provided that it is passed down to direct descendants (broadly children and grandchildren).
|
Year |
Nil Rate Band |
Main Residence Nil Rate Band |
Total |
Per Couple – for family house |
|
2015/16 |
£325k |
- |
£325k |
£650K |
|
2016/17 |
£325k |
- |
£325k |
£650K |
|
2017/18 |
£325k |
£100k |
£425K |
£850K |
|
2018/19 |
£325k |
£125k |
£450K |
£900K |
|
2019/20 |
£325k |
£150k |
£475K |
£950K |
|
2020/2021 |
£325k |
£175k |
£500K |
£1M |
Jo Bateson continued: “For direct descendants of couples with large family homes, today’s announcement represents a large saving in IHT. As an example, looking ahead, if a surviving spouse dies with a property worth £1.5m in 2017 their IHT bill falls from £260k (which is what it would have been prior to today's Budget) to £180k (a saving of £80k). If the same events take place in 2020 when the changes are fully implemented, this IHT bill falls to £120k (a saving of £140k on the same scenario before the changes took effect).
“However, for those whose estates do not include residential property, for example those in rented accommodation, smaller properties or with assets other than property (jewellery, art, savings etc), this relief does not appear to be available although they may be able to benefit from the downsizing relief depending on how this is worded. And children of unmarried parents or heirs who are not children won’t benefit. So for example: nieces and nephews would not be able to inherit a house from a wealthy aunt or uncle and neither would a biological child of unmarried parents qualify but a step-child with a married parent would be eligible.
“As expected, this relief is capped for the wealthy with the relief withdrawn for properties in excess of £2m. It is fully withdrawn for properties in excess of £2.35m (from 2020 when the relief is fully introduced) and personal representatives can nominate a property where more than one qualify.”
Paul Latham, managing director, Octopus Investments: 'Today’s announcement comes as no surprise. Official confirmation that the government will be gradually increasing the nil rate band on property people leave to their children or grandchildren will no doubt be welcomed by many. With a significant amount of people’s wealth in the UK tied up in their home, today’s news will provide comfort that their family can now benefit from this nest egg. The nil rate band for inheritance tax was fixed at the current level back in April 2009. Since then, house prices have soared by 44%, so it’s good to see the new family home allowance take account of this and bring IHT legislation in line with today’s property market.'
Vince McLoughlin, partner, Russell New: “The problem with inheritance tax is that many individuals caught under the £325,000 threshold feel they are leaving a relatively modest inheritance to their family and yet it is subject to a tax which is seen by many as intended to target wealthier people. The freezing of the IHT threshold coupled with rising house prices throughout large parts of the UK have made the current inheritance tax threshold somewhat inadequate and it’s the right time for a change. This is a tax which hits people who have worked hard throughout their lives and who simply want to provide for their children after they die. Building up a legacy for our children and grandchildren is one of the reasons we go to work in the morning. By announcing that the threshold will be raised, middle-class families who are not mega-rich should be able to leave their house to their children without having 40% taken off the value.
Frank Nash, Blick Rothenberg: 'The 2012 changes that introduced an annual tax charge (ATED) on families that held their homes in companies was a levy for those individuals, typically non-doms, who preferred the corporate ownership to mitigate inheritance tax. The gradual reduction in the property threshold from £2m to £500,000 by April 2016 brings more home owners into the ATED charge. The annual receipts for ATED were predicted to exceed £200m by April 2016. In addition, for those purchasing new homes in a corporate structure, SDLT at 15% is payable increasing the cost of sheltering property value from Inheritance Tax. By extending the inheritance tax charge to homes held in companies, there are now big incentives to take property back into individual ownership. In creating this incentive, the chancellor has put this immediate annual tax revenue at risk. Many families will remove their homes from companies, and hold them personally. Then they may well choose to insure against the risk of inheritance tax. The exchequer will get its inheritance tax eventually, but in the short term, there is every logic to believe that the £200m tax receipts from non-doms on UK residential homes may well be lost.'
Iain McCluskey, partner, PwC: 'This new relief will be a welcome boost for the families of those who have seen the value of their homes catapult upwards in the last 20 years. Also announced was a clever mechanism designed to help those who downsize earlier in life still getting this tax break. This should mean that the new rules do not lead to the elderly avoiding downsizing just to benefit from the new inheritance tax break. This move also is a further nod to the chancellor's tax simplification agenda - much like the savings reforms in the last Parliament - as it will take people out of the inheritance tax system without significant impact on tax revenues.'
Anita Monteith, ICAEW tax manager: 'The UK has one of the longest and most complicated tax codes in the world. Inheritance tax makes up a significant part of this, yet generates relatively low tax revenue. Linking the increase in the exemption specifically to a residence in an estate is adding further complication, although of course is still good news for those who will pay less tax. A general increase in the IHT threshold would have been much simpler.'
Lynne Rowland, Kingston Smith: 'Although the increase in the inheritance tax allowance to £1m is of course welcome, the restriction to main family residence will further increase the lack of family housing. At a time of acute housing shortage this cannot be the consequence the chancellor planned.'
Commenting on the announcement that IPT will be increased from 6% to 9.5%, Adrian Smith, global head of IPT at KPMG, said: 'IPT generates around £3bn per year for the UK government, so today’s increase will raise an additional £1.75bn. However the increase in IPT might result in general insurance policyholders having insufficient cover, as they seek to balance an increase in price with maintaining the cover they require. While 9.5% is still a reasonably low rate compared to other countries, it could be enough to tip the point for a customer to reduce their cover, or opt for no cover at all. We may also see businesses choose to insure with overseas insurers who do not always correctly account for UK IPT. UK-based insurers could struggle to compete with these overseas insurers who, by not correctly charging this tax, are able to offer lower premiums. However businesses must be careful as these providers may not necessarily have the same level of regulation as UK insurers and, therefore, policyholders may not benefit from the same level of protection. Overall it is unlikely to significantly impact insurers as most insurers have systems in place to react to such changes, having previously had the original inception of IPT and three standard rate increases to contend with. However the real challenge will be for UK insurers to help policyholders understand the balance between price and cover given the changes.'
David Bearman, EY: 'The rise in insurance premium tax (IPT) was unexpected, and while a headline rate of 9.5% doesn't sound significant, it is in fact an increase of more than 50% of the standard rate. As ever with rate rises, the most prominent concern is that it will drive a number of consumers to forego buying insurance, which increases their personal risks, and in the case of motor insurance could mean a rise in illegal drivers. UK insurers will now need to pay particular attention to policies and premium payments that extend beyond the deadline, if they don’t want to be caught out.'
Colin Graham, PwC global insurance tax leader: 'The Summer Budget will largely be viewed as mixed news by groups in the insurance sector. The chancellor has shown his commitment to ensuring Britain remains competitive by announcing a cut corporation tax to 18% by 2020. However insurance, particularly the London market, is a global business and it is important that the chancellor ensures the UK remains the most competitive place in the G20 to do business. However this positive feeling will be tempered by the rise in the standard rate of insurance premium tax to 9.5% from 1 November, changes to pension relief and greater regulation of claims management companies. It will be important that these new rules don’t create uncertainty and unnecessary cost for business. We are yet to see the detailed measures proposed.'
Mike Kelly, head of living wage at KPMG: “The new compulsory national living wage is very welcome news for the more than two million of the working poor who will get a significant pay rise. Enshrining the living wage in regulation is a brave move and by 2020 the national living wage will reach 60% of median earnings. For employers who are concerned at whether the increased payroll costs will be fully offset by reduced corporation tax and national insurance contributions, our experience has seen lower absence, increased productivity and a more engaged workforce.'
John Harding, employment tax partner at PwC: '[The introduction of the new national living wage ] is great news for the 1.4m people currently on the national minimum wage (NMW), as over the course of a year they will broadly see a 10% pay increase as they move to the new living wage. But businesses need to prepare for the significant increase in staff costs, especially as it will predate the reductions in corporate tax by a year. Employers should also be aware of the likelihood of short-term wage inflation among hourly paid workers due to the rises. Although this increase will only affect the over 25's they do make up a significant proportion of employees who are either on or just above the current NMW. Particular sectors affected will be retail, hospitality and cleaning, which make up over half of all employees on the NMW. As this will add to costs and make employing extra people less affordable, we will need to wait and see whether these measures will have the impact the chancellor wants on job creation.'
David Kilshaw, EY's head of private client tax: 'It is encouraging that the chancellor has recognised the contribution made by non-doms and has not abolished the regime. However, the non-dom status will become “time barred”. These changes will drive new behavior. We may see an upsurge on “boomerang non-doms” such as those who go overseas for five years to refresh their domicile status and then return to the UK. For those born to British parents, the chancellor has made domicile part of your DNA. A person born to a British father can no longer go offshore for a few years to acquire non-dom status. Goodbye to Gulliver’s travels.'
Alex Henderson, tax partner at PwC: 'The changes for non-doms weren't unexpected after the attention they received in the Election campaign, but are a game changer for those affected. Non doms who have been in the UK since 2002 will come within the full UK tax regime in 2017. All their overseas interests will need to be translated and understood in the UK, which can take weeks or months of work. Non-doms who face tax rises or complications as a result of the changes have a simple choice: get their affairs in order or prepare to leave the UK. The 15 year limit, which could be 13 unless you come on 6th April and leave on the 5th, isn't very long if, for example, you're wanting to educate your children in the UK. The change to bring non-UK companies holding UK property into the inheritance tax net was a little more of a surprise but consistent with changes in the last Parliament. This package of measures are ripe for review and integration now.'
Sophie Dworetzsky, partner, Withers: 'In the most seismic change in well over a decade to personal wealth tax policy, George Osborne, in what was meant to be an unfettered Tory Budget, today announced massive changes to the remittance basis. Currently non-domiciled UK residents contribute c£8.2bn annually to the economy. In an attack on the remittance basis, it was announced that after 15 out of 20 years of residence any non-domiciled resident will no longer have access to the remittance basis. Details need to be clarified, but let's hope that the chancellor hasn't played fast and loose with one of Britain's major appeals to international wealth creators and entrepreneurs.'
Andrew Sneddon, partner and head of tax, Trowers & Hamlins: 'It is not surprising that the government is targeting non-domiciled taxation rules, but there is concern that the abolition of permanent non-domiciled status for long-term residents risks an exodus of wealthy individuals prior to reaching 15 years residency. Such individuals will need to review their position before April 2017.'
Simon Baylis, Moore Stephens: 'These changes make the UK significantly less attractive to overseas high net worth individuals who contribute substantially to the UK’s tax base. The new ‘15 out of 20 years’ rule is likely to push a considerable number of high net worth individuals out of the UK. Most will not see moving to a more favourable jurisdiction as a major problem – they are already highly internationally mobile. For many of them, this will simply mean paying more attention to the number of days they spend in the UK, to ensure they remain non-resident for the year. Alongside the traditional choices such as Switzerland, some non-doms may target other jurisdictions such as Spain and Portugal as potential destinations if they leave. There are many factors, such as local wealth tax, to consider but in Portugal for example, ex-pats can reside in the country for up to ten years, and pay a flat 20% expat income tax on Portuguese income only. This may allow them to get back below the ‘15 out of 20 years’ barrier and then return to the UK.'
Shiv Mahalingham, Duff & Phelps: 'The non-dom changes announced may deter certain investors from the UK; however, many non-doms will not be impacted as the focus is on long term residents.'
Richard Morley, BDO: 'The chancellor, as expected has included changes, originally championed by Labour in a last minute election grab, to abolish the permanent non-dom status. The policy, which is expected to raise £1.5bn, means many more Brits will now be liable to pay full UK taxes from April 2017. Currently a UK resident non-domiciled (RND) individual can live in the UK for most, if not, all of their working life and claim to be a non-dom, and therefore reap the tax benefits. The announcement today specifically aims to address this and crack-down on long-term non doms which are resident in the UK, without an intention to remain indefinitely, as well as second generation non-doms who automatically claim the domicile of their ‘parent’ giving many non-dom status. Looking at the policy more closely, it does not appear to make any changes to the remittance basis which allows non-doms to use the status for free for the first seven years. However, it does appear to override the current deemed domicile provisions for inheritance tax (IHT) purposes, which meant that the worldwide assets for a RND became subject to UK IHT if they were a UK resident for 17 out of 20 years up to their date of death. These new rules may only result in a small number of current non-doms considering whether or not to leave the UK, but on the whole, this is unlikely to see a significant impact on the current levels of RND’s, nor those seeking to come to the UK.'
Nimesh Shah, Blick Rothenberg: 'Major changes announced to the non-domicile rules effectively mean that non-doms are taxed on their overseas income and capital gains after 15 years. This isn't aligned with the current rules on inheritance tax where a non-dom is brought into UK IHT after 17 years. It would make sense to align all three taxes but this wasn't mentioned by the chancellor.'
Alison Cartin, Berwin Leighton Paisner: 'There are extensive changes to the non-domicile status, which will have a significant impact on long-term UK resident non-doms. It may nevertheless be a relief to the globally wealthy and their advisers to see some clear, balanced thinking on this, in light of the press around the time of the election.'
Anita Monteith, ICAEW tax manager: 'The xhancellor has always had to tread a narrow path with non-doms, and the measures announced will appease the general public while ensuring that they continue to come and spend money in the UK.'
Jenny Wilson-Smith, a solicitor at Boodle Hatfield: 'Non-doms proved to be one of the more contentious election themes earlier in the year and reform was expected. However, the depth of the proposed reform is surprising. We will look forward to seeing the scope of the consultation and will be making representations to government to ensure that the new rules are workable. In addition, the chancellor announced restrictions to restrict the fairly widespread practice of non-doms owning UK homes through an offshore company/trust structure so that they are outside the UK inheritance tax net. To some extent the popularity of such arrangements has been eroded in recent years due to the imposition of an annual charge on properties owned in a corporate structure. The changes announced in yesterday’s Budget will abolish the IHT benefits of owning property in this way altogether which was quite unexpected and will require all affected clients to review their position and consider restructuring in advance of April 2017.'
Anita Monteith, ICAEW tax manager: 'Efforts to boost the Office for Tax Simplification are long overdue. The vast majority of red tape that burdens business comes in the form of tax regulation. Given that recent Finance Bills have been some of the longest on record, we are delighted that the OTS has been given some teeth to take this forward.'
Kevin Nicholson, head of tax at PwC: 'Expanding the role and capacity of the OTS could be a game changer for tax policy. The OTS needs the teeth to cut through the overgrowth of tax legislation. Moreover, the OTS can now be an independent arbiter of tax policy, making sure decisions are in the long term interest. Our research shows people and businesses are crying out for greater scrutiny of tax decisions. It's positive the government will commission the OTS to review the closer alignment of income tax and NICs. The personal allowance increases mean the national insurance and income tax rates are moving further apart, and this is creating all sorts of complications, not least that the lowest paid still pay tax.'
Richard Newby, Duff & Phelps: 'Although somewhat surprising, today’s lack of announcement about the advanced state of preparation of the UK’s new Patent Box regime, does not detract from the fact that the UK is clearly ahead of the pack of countries being obliged by the OECD Forum on Harmful Tax Practices (‘FHTP’) to revise their IP regimes. This week’s FHTP meeting in Paris now means that the UK very shortly will be able to release draft legislation for consultation and start to bring research and innovation back to the UK.'
Commenting on the chancellor’s Budget announcement of a green paper on whether pensions should be treated like ISAs, Mike Smedley, pensions partner at KPMG: 'We are fundamentally positive about any move to encourage the public to save more for their retirement. We welcome the fact that this consultation is taking place at an early stage and that the Government is open-minded on the outcome. Whatever the result, there needs to be an incentive in place to encourage people to tie up their money for long periods of time. Incentives for long-term savings need to be better than for short-term savings. If treatment was the same as ISAs it would be a back-door removal of the tax-free lump sum. It’s essential that the individual has certainty about the pensions system. Young savers need to know that their savings won’t be raided by future governments. Any changes that we see need to result in the right long-term system for savers. A change to an ISA-like tax system would benefit the Treasury, but it’s hard to see how it would encourage long-term saving. Equally, employers must stay ahead of any changes, review the savings products they provide to employees and encourage financial literacy. With all of this uncertainty people may not know where to put their money. This savings landscape needs to be clear and simple, otherwise those that want to save may end up thinking the safest place for it would be under the mattress.'
Jason Whyte, EY: 'While harmonising pensions and ISAs on the ISA model would simplify the tax regime it would mark another huge shift for savers, employers, the pensions industry and the future economy. If it goes through, he will receive a huge short-term windfall - unless consumers start saving less. But how much more change can savers take before they lose confidence in the system altogether? Can the industry and employers adapt when they are still reeling from the chancellor’s 2014 changes? Perhaps most importantly, there could be a risk to the future economy. A generation who save through pension ISAs will pay no further tax once they retire, while making ever increasing demands on the healthcare system. The tax revenue from their contributions will have been long spent. The scale of change contemplated is on a par with the Thatcher government’s reform of the housing market, so it is important that the government is going to consult through a Green Paper rather than just driving the change through.'
Peter McDonald, pensions partner, PwC: 'This review is long over-due as the tax treatment of pensions has got out of hand and is overly complicated. Continual changes have undermined confidence in pensions and this is a great chance to re-build that trust by overhauling how pensions are taxed once and for all. This could help address the fairness of tax relief for those members earning defined contribution versus defined benefit pensions. The government’s focus on encouraging a saving culture is good news. But turning taxation on its head, while convenient from a fiscal perspective, is really hard to communicate to consumers – especially those coming into auto enrolment for the first time, who often don’t have the support of employers' with long pensions history themselves. Saving for pensions and ISAs should be kept separate as there are clearly distinguishable goals – saving for old age versus earlier life events. The danger is that combining pensions and ISAs will confuse people’s savings and could leave people short at retirement. Consumers want both options and currently have this through their employer’s benefits programmes. Perhaps the tax advantage can be switchable, but funds need to remain separate. A radical change to taxing monies on their way in would effectively be a back door removal of the tax-free lump sum at retirement. It would be a major challenge for pension supporters if this was to happen, or if tax-free lump sum was to be removed for contributions already made. There is also a question now being implicitly raised by Government as to whether employers should enjoy tax relief on contributions to pay off defined benefit deficits. This could have a major impact on employers’ willingness to engage in supporting sustainable long-term savings of any kind. The public sector is not mentioned explicitly but as the largest area of continued defined benefit cost, one wonders whether the green paper will focus on the tax cost of these to the country?'
Stewart Hastie, pensions partner at KPMG: '[Budget announcement that the annual allowance for pension savings will be reduced from £40,000, to £10,000] will create headaches for employees, employers and pension schemes. By design, individuals going above the annual allowance are effectively being taxed twice. But under the proposals, a significant number of impacted individuals are unlikely to know what their Annual Allowance is until it is too late to do anything about it. Individuals may decide to restrict their pension savings to £10,000. Individuals will need more help and information from their employers and pension schemes. Employers and schemes must ensure they have the right processes and systems in place to cope with these changes.Employers will also need to consider wider benefits as pensions become significantly less valuable than just paying cash for a much wider range of the UK employees than ever before.'
Jason Whyte, EY: 'No surprise today on pensions tax relief – but maybe a nasty one later. As expected, the chancellor made changes to IHT and pensions tax relief that amount to “save less now, inherit more later”; today’s high earners won’t be able to save as much on a tax-free basis, but will be able to inherit the ancestral home and the remains of their parents’ pensions intact. People might spend money that would have gone into their pensions on subsidising retired parents to preserve their pension pots. There’s also a big question about whether these changes, which bring tax revenue forward, will create a revenue hole for a later government.'
Peter McDonald, PwC: 'This makes a complicated pensions tax system even more complicated. An ad-hoc change just disengages business leaders from the role of pensions in their organisations. Senior employees may now not bother saving into pensions. It sends a mixed message into society. Auto-enrolment is about engaging the shop floor and lower earners in pensions, but by disengaging bosses it feels that people are no longer all in this together. This creates a level of uncertainty and complexity for people earning around £120,000 or more a year, and could see a rush of these people coming out of salary sacrifice arrangements as they won’t know if they have breached the tax limit until the end of the tax year. We would encourage employers to undertake a review of their pensions salary sacrifice to understand who will be impacted by this dramatic change.'
David Kilshaw, EY: “The chancellor clearly wants to boost people’s pay packets… but it is a very small post-election thank you. We still have not seen an increase in the threshold at which NI is paid, which would have been helpful to the lower paid. And there is now almost a £3,000 difference in the limit at which NI and income tax bite. The chancellor announced an increase in the personal allowance to £11,000 with effect from 6 April 2016, rising to £11,200 by 2017/18. The £11,000 personal allowance represents an increase of £400 on the current rate and £200 from the allowance announced in the March Budget. In total, this represents an annual tax saving of just £80 per year for a basic rate tax payer. Nothing to write home about but the change to personal allowances will grab the chancellor some easy headlines. The chancellor has also confirmed that he will raise the level at which individuals start paying tax at 40% from £42,385 per year to £43,000 for 2016/17 rising to £43,600 for 2017/18. This, combined with the increase in the personal allowance, represents a further small saving for higher rate taxpayers in 2015/16.'
Iain McCluskey, tax partner at PwC: 'The personal allowance increased by almost 30% above the rate of inflation in the last parliament, and powers on towards his end of parliament target of £12,500. For some, this will mean an end to paying income tax altogether, though many of the lowest earners like apprentices and part time workers won't benefit as their earnings are less than the current personal allowance. It is also important to remember the lowest paid still pay national insurance, a tax in all but name. There is now a big difference between these two key lower limits in the tax system, and to truly take the lower paid out of income taxes, then the national insurance lower earnings limit needs to align with the personal allowance.'
Chris Groves, Withers: 'Higher earners, who may consider themselves dyed in the wool Tories, may be wondering what they voted for in May. While raising tax thresholds may reduce tax burdens, the abolition of the dividend tax credit, restrictions on bank interest deductions for buy-to-let properties and the reduction of pension tax relief will hit those persons hard. Lower earners, who may not consider themselves the natural constituency of the Conservative party, will be wondering if even the Labour party could have delivered such a positive budget.'
Alex Henderson, tax partner at PwC: 'The changes to the taxation of private equity carried interest bring to an end a basis of taxation agreed with HMRC as long ago as 1987 when the industry was in its infancy. This is one of a series of changes that have affected the way the industry has been taxed in recent Budgets and reflects the chancellor's progressive tightening of the tax regime and withdrawal of reliefs. Those affected will have to hope that other changes in the Budget will have a positive effect on the economy which feeds through into deal values. The worry will be is this the end of the road for tax on the private equity industry.'
Paul Smith, Blick Rothemberg: 'The chancellor has indicated that the “base cost shifting” rules, which allow private equity executives to pay very low levels of tax on their “carried interest” profits, will be abolished. However, his statement indicates such profits will still be taxed at capital gains rate rather than income tax rates'.
Tina Hallet, head of public sector, PwC: 'The Budget has flagged productivity and skills plans - the detail will be critical later this week. Dealing with the deficit is as much about controlling costs as it is about supporting growth. We need to be building towards a pro-growth Spending Review prioritising education and skills, infrastructure, R&D, business support and access to finance. This would also support the drive to decentralise and broaden the scope to create many, not just one, ‘powerhouse’. We heard about asset sales in the Budget, but generally we need to release more value from public sector assets: this should be a challenge put to departments as part of the Spending Review.'
Nick C Jones, director, PwC: 'Given the scale of the remaining challenge, a multi-year settlement in the Spending Review would give departments the real stability and an opportunity to focus on the long-term gains while going through the short-term pains of deeper cuts in unprotected departments, with a focus on outcomes for the public and businesses. With £12bn welfare cuts and £5bn in tax avoidance measures, the rest of the planned £37bn fiscal consolidation will fall heavily on those departments outside the ring fence. Local government in particular could face further significant cuts. At a time when the push is to decentralise, this puts a premium on those areas with strong leadership, capability and capacity across partners across a region, potentially larger than the traditional city, town or regional boundaries. The Spending Review provides the ideal opportunity to incentivise decentralisation, encouraging departments to identify the funding and powers that could be devolved.'
Jo Bateson, private client tax partner at KPMG: 'Landlords are buy to let losers but rent a room winners as a result of today’s Summer Budget. On rent a room, the annual tax free allowance has been raised to £7,500 a year meaning that a householder could let out a room for £144 a week before becoming liable to any tax on the income. This is a whopping 76% increase on the old allowance of £4,250. With the growth of the ‘sharing economy’ and a rising number of people seeking Monday to Friday rentals in city centres, this could prove a very valuable break for householders on a tight budget lucky enough to have a spare room. On buy to let, landlords will face a restriction in their ability to offset mortgage interest (which will be capped at the basic rate of income tax, phased in over 4 years, starting from April 2017) and, from next April, the annual ‘wear and tear’ allowance will be replaced with a new system under which they can only deduct costs they actually incur. For a higher rate landlord with rental profits of £15,000 and mortgage interest of £3,000, these changes will cost £1,200 when fully in force in 2020 which increases the effective tax rate from 24% to 32%. It will be interesting to see whether buy to let landlords decide to keep their property portfolios or sell up ahead of the changes. They have some time to think about it since they won’t take effect until next April for wear and tear and the following year for the restriction on mortgage interest. If reasonably large numbers of landlords decide to sell up and significant amounts of second hand stock becomes available as a consequence, this could have an impact on the housing market and could cause problems for some developers reliant on investors to maintain the rate of sale. There is also some risk of rental rates rising as a result of fewer properties available creating a market squeeze and landlords seeking to compensate for increased costs. In order to avoid this, it would be helpful to see a longer-term commitment to accelerate the build of private rented sector stock, coupled with a more regulated market.'
Anthony Thomas, chairman of LITRG: 'This is very welcome news. LITRG has been calling for an increase in this limit for the past few years. Ideally, we would have also liked to see a commitment to up-rating the limit year by year. Rent-a-room relief allows people to receive tax-free income from renting out a room or rooms in their only or main residential property. The relief also applies to someone who rents out rooms in a guest house or bed & breakfast, provided that the property is also that individual’s main residence. Rent-a-room relief was first introduced with effect from 1992/93. The rate of the relief has been fixed at £4,250 since 1997/98. We made representations1 prior to the Budget 2013, calling for the relief to be up-rated, to reflect the increase in residential rents since 1997. We repeated our call in our 2015 Manifesto for Low-Income Taxpayers. The increase in the rent-a-room relief limit could not only help various groups, including first-time buyers, those struggling to meet mortgage payments and those seeking affordable housing. It may also allow some individuals to be taken out of self assessment, if they only complete a tax return because of rental income above the current rent-a-room relief limit.'
Ed Molyneux, CEO, FreeAgent: 'This Budget is a mixed bag for small businesses. On the one hand, there’s good news for growing business taking on staff as they’ll benefit from a higher employment allowance, but that will be hugely tempered by the introduction of a much higher living wage that they will have to pay those staff. However, there's no good news for small businesses who aren’t looking to take on staff. Directors of limited companies who are the only employee will no longer benefit from the employment allowance, which will be a big blow to them, and there are no new incentives or support for entrepreneurs launching a solo startup business. I would have liked to see IR35 being scrapped, or an overhaul of how VAT MOSS affects the very small businesses, but the main Budget announcements seem to be more focussed on very large companies or smaller businesses who are already enjoying success and are ready to grow. For the average freelancer, contractor or startup business, there’s not much to get excited about.'
Audrey Fearing, EY: 'Shared services providers will have to wait a little longer to find out exactly which additional public sector entities will benefit from inclusion in the VAT refund scheme. VAT is often a barrier to outsourcing in the public sector as it is ordinarily an additional cost, as such it can reduce and sometime remove any savings that can be achieved. The VAT refund scheme helps to ensure that this additional cost is neutralised. The anticipated extension of the type of public sector bodies eligible for this scheme has been delayed until a future Finance Bill. However the legislation will be backdated to April 2015, so the reliefs are in effect available now. Non-departmental public bodies should now be considering whether they should apply for the VAT refund scheme. This provides outsource providers with greater scope for working with these types of entities, helping them to deliver services.'
Tom Wilde, partner at Shoosmiths: 'The amendments announced to the venture capital schemes are generally more restrictive than those proposed earlier in the year, which suggests that the government has had feedback from the EU on its original proposals (and presumably therefore is fairly confident that the new proposals will receive state aid approval). New rules which prevent VCTs (whenever the money was raised and whether or not the investment is intended to be a qualifying holding) using their money to acquire shares, and a ban on both EIS and VCT money being used to acquire trades or assets have also been announced. Although we must wait until the detail is published next week in the Finance Bill, on the face of it this represents a new very significant restriction to the venture capital regimes. If it is as significant as it appears, then it is unfortunate and unhelpful that such a restriction was not part of the March consultation, and it would be interesting to understand the reasoning for this – was this a measure introduced at the last minute after responses to the March consultation highlighted the use of VCT and EIS funds in this way?'
Chris Sanger, head of tax policy, EY: 'The chancellor resembled ‘Michelangelo’ as he re-sculpted the UK tax system, taxing dividends, proposing changes to pensions, adding a new tax on banks, cutting corporate tax rates and restricting interest relief on buy-to-let investments.The chancellor went well beyond what many expected, spanning the whole tax regime, from non-domiciles to vehicle excise duty. He may not have listened to Lord Lawson's argument on abolishing the 45% income tax rate, but he clearly wanted to emulate his reputation as a man of principle and principled reform.'
Bill Dodwell, head of Deloitte's tax policy group: 'Budget rumours warned us to expect a major Budget – and so it proved. One hour and six minutes later, chancellor George Osborne had announced net tax rises worth nearly £5.8bn by 2020/21. He also announced £800m in new funding for HMRC – about £225mn annually. The headline measure is the increase in the national minimum wage to £7.20 per hour from £6.50 currently (and its renaming to national living wage). This will then increase to 60% of median earnings by 2020. Business receives support in the form of an increase in the employment allowance to £3,000 from 2016 and, from 2017, a cut in corporation tax to 19%, followed by a cut to 18% from 2020. Business investment also receives support in the form of a permanent £200,000 annual investment allowance (immediate tax relief for business assets) once the current £500,000 allowance finishes at the end of 2015. Large companies with profits over £20m will be asked to pay their corporation tax during the accounting year, though, which brings in about £8bn over 2017/19.'
Michael Izza, ICAEW chief executive: 'The big question that tax payers and businesses will be asking after this Budget is what does it mean for me? What it will inevitably mean is more regulation and tax law that everyone, including chartered accountants, will need to cope with. This is from a government that wants to simplify the tax system and reduce the regulatory burden. The government still has much to do to secure the long economic recovery and bring the deficit under control. It therefore needs to be doing more to support businesses by encouraging investment, growing exports and helping improve productivity.There was little detail in today’s Budget on how it intends to do this.'
Chris Morgan, head of tax policy at KPMG in the UK: 'There will be a mixed reaction from corporates to the chancellor’s Summer Budget. The drop in the corporation tax rate, going down to 18% in 2020, will be very welcome and while banks will see an 8% surcharge on profits as of next year this will be offset by the fall in the bank levy. There will be a large hit for large corporations in tax years 2017-2019 as the effect of the acceleration of tax payments comes through and, while this is a timing issue, it will be problematic for companies with cash flow difficulties. Additionally, while a number of anti-avoidance measures were announced, for example relating to the use of losses against a controlled foreign company charge or attaching a penalty to failing the general anti-abuse rules (GAAR), these, in reality, will affect very few companies. For smaller businesses the increase in the NIC threshold to £3,000 will be an incentive to take on more staff and the fixing of the annual investment allowance at £200,000 provides more certainty for investment. The big question for all employers though will be the compulsory national living wage to be introduced as of next year. Many companies already pay such a wage but for those in a sector that traditionally pays at the lower end, such as home care, retail, leisure or hospitality, the question will be to what extent the increased cost can be passed on to customers. The likes of retail and leisure industries may well profit from consumers having more money in their pockets as a result of higher wages and reduced personal allowances – but time will tell whether other sectors will see the same sort of benefit. Overall, today’s announcements represent a mixed bag for business but certainly more black and white than the previous Budget.'
David Brookes, tax partner at BDO: “The chancellor described this as a ‘big budget for a country with big ambitions’ but it largely bypassed medium sized businesses, the backbone of the UK economy.On the one hand the surprising reduction in the headline rate of corporation tax to 19% next year and 18% by 2020 was a positive move for businesses, as was the increase of the NIC employment allowance from £2,000 to £3,000. However, this will largely be offset by the introduction of the national living wage which may well have a significant impact on small businesses. We were pleased to see that the annual investment allowance for plant and machinery was set at a long term level of £200,000 per annum. The allowance is currently £500,000 but was due to reduce to £25,000 from 1 January 2016. Although we would have liked to see a more generous allowance this is still a significant incentive for businesses to invest in their future and hopefully go some way to addressing the UK productivity conundrum.'
Jim Meakin, Baker Tilly’s head of tax: ‘The chancellor’s "security first" Budget was far more significant than expected. He has shown real creativity in navigating around the triple lock, finding a number of areas for generating additional revenues while announcing some eye-catching measures such as the new living wage, designed to generate a feelgood factor about progress in the economy. Every corporate business is set to benefit from a continued reduction in the corporation tax rate which will reduce to 18% by 2020, however, this could be offset by higher costs for employers such as meeting the living wage requirement and the apprenticeship levy. In addition to the heavily trailed changes to the inheritance tax threshold which increases to up to £1m for a couple over their lifetime reflecting the value of a family home, the other significant announcement concerned buy to let property owners, who will be adversely affected by the abolition of relief for mortgage interest. There will also be a wholesale review of how dividends are taxed, the outcome of which seems likely to be that most recipients will be no worse off, and may be better off. However recipients of large dividends from private businesses and holders of large investment portfolios may well lose out.’
Iain McCluskey, tax partner at PwC: 'While not as radical as the chancellor made it out to be, the Budget was a 'thank you' to middle England for coming out to vote in May. Liberated from the coalition, the chancellor rewarded his core voters - baby boomers and pensioners - with a couple of drops of tax sweetener in their afternoon tea. The inheritance tax change to family homes will certainly have had many in the south cheering from their conservatories and patios. However, whilst many lower paid taxpayers will have been pleased with the slightly increased minimum wage, now rebranded as the 'living wage', the lack of substantial movement in the NIC lower earnings limit leaves many of the poorest employees outside of the income tax system but still liable for NIC.'
Sandy Bhogal, head of tax at Mayer Brown: 'This proved a difficult Budget to predict in many ways, and with DPT implementation proving cumbersome and BEPS implementation likely to consume resources in 2016/17, the government has taken the opportunity to rebase parts of the tax system and thereby facilitate significant net tax rises. The financial services sector has again been targeted, with the proposed introduction of an 8% surcharge on banking profits aligned with a gradual reduction in the size and scope of the bank levy (further complemented by the announced reduction in corporation tax). The insurance industry will also have noted the rise in the standard rate of insurance premium tax to 9.5%. The funds industry will be bracing itself for the proposed consultation on performance rewards for managers and potential increased CGT charges on carried interest structures. One of the aims of the consultation seems to be exploring whether a statutory basis for determining whether a manager’s interest in the performance of fund assets is investment or trading could be possible. This will be interesting to monitor, particularly as it may have wider ramifications for the tax code.'
Kal Siddique, tax partner at EY: 'While the government has ignored aviation and travel industry pleas for a wholesale review of the APD regime in the UK, it has issued a discussion paper that considers various options such as devolving APD within the English regions, varying APD rates across English airports and also providing aid to English regional airports. This is set against the background of APD devolution to Northern Ireland, Scotland and possibly also Wales, with an SNP proposal to reduce APD by 50% from Scottish airports. The Treasury is reacting to concerns raised by English regional airports about collateral damage from possible APD rate reductions at nearby airports in Scotland or Wales, but this also raises the spectre of a compliance nightmare for airline operators who will need to administer multiple APD rates within the same country with extensive system changes required and re-pricing of flights. As it stands we already have 6 rates in the UK and could end up with more than 20.'
Earl Yardley, Industrial Vision Systems: 'The announcements made at the Summer Budget provide a positive outlook for UK manufacturing. The more investment and tax breaks within this space, the more stability there is for key industries, such as pharma, medical device, and automation, which, in turn, will also enhance the performances of UK engineering firms. The chancellor should be applauded for fixing the annual investment allowance (AIA) for capital allowances at £200,000. We have already seen a significant increase in investment made in new automated production lines and cells across the UK manufacturing base. By establishing a long term rate, this is sure to boost productivity and help leverage the UK at the forefront of the global manufacturing sector.'
Vince McLoughlin, Russell New: 'Osborne, and rightly so, had to outline more plans to tackle tax avoidance and aggressive tax planning by the rich. He will face little opposition from the business community - specifically to his plan to raise over £5bn from targeting evasion and “aggressive” avoidance. Confirmation that the annual investment allowance (AIA) for capital allowances will be fixed at £200,000 is a relief for the business community. By committing to a long term rate, Osborne has provided stability and consistency for firms that like to plan and invest for the long term, many of which may have delayed their investment plans up until this announcement. Confirming that the rate will be kept at this higher level will kick-start the kind of investment needed to enable businesses to thrive.'
Clive Lewis, head of enterprise at ICAEW: 'We are delighted that the Chancellor has listened to our call to reaffirm the annual investment allowance - albeit at £200,000, and not £500,000. Keeping this level for the duration of parliament will provide stability and consistency to firms that like to plan and invest for the long term, and would kick-start the kind of investment needed to boost our productivity in the medium term.'
Frank Nash, Blick Rothenberg: 'There is no apparent logic in the fluctuation of the annual investment allowance in recent years. It’s as if the chancellor rolls two dice and adds some noughts on the end. If the £500,000 allowance was good last year, why not continue with it?'
Tina Riches, national tax partner, Smith & Williamson: 'Tax avoidance and aggressive tax planning remains in sharp focus. HMRC is to demand strict compliance to tightened rules, with investment in its teams, which are to further track down tax avoidance and aggressive tax planning. Business owners and HNWs will be specifically targeted. The introduction of direct recovery of debts and greater use of naming and shaming for those who transgress the rules will be used. Top earners will feel the pain with a mix of reductions to tax relief and a hardened approach to ensure the wealthiest continue to pay the lion’s share of tax. The chancellor announced targeted measures to curtail tax avoidance and reductions in pension tax relief. Coupled with the tightened rules for landlords with buy to let properties, individuals will need to put an even greater emphasis on tax compliance.'
CIOT tax policy director, Patrick Stevens: 'In the past, governments have announced each year how much tax receipts are going to be increased by tackling evasion and avoidance. Many of the changes made are then simply changing tax rules rather than closing down some abuse of the system. So many rule changes and demands for action have been referred to as anti-avoidance, nobody really knows what the phrase now means. In this respect today’s Budget is a step forward. As well as stopping evasion and avoidance, the chancellor is now "rebalancing the tax system" to get a result that he thinks is fairer. This is helpful as he is no longer referring to many old activities as avoidance. He is just changing his mind about what he thinks the rules should say. It is to be hoped that more transparency in this area will make it clear that many activities of taxpayers, complained about by politicians, are not avoidance but a previous policy someone did not like. This new category of tax changes will contribute to the promised £5bn a year of additional compliance revenue by the end of this Parliament. Some will question whether this moves the goalposts in this area to bring in changes most would consider simply tax increases.'
Chris Bates, tax partner at Norton Rose Fulbright: 'Addressing aggressive tax planning continued as a theme in the chancellor’s budget for individuals and businesses alike, but it no “rabbit out of the hat” as we have seen in the past, most recently in the diverted profits tax. Further measures announced include extra investment for HMRC’s work on tax planning and non-compliance and tripling the number of criminal investigations HMRC can undertake into complex tax crime. The devil is in the detail however, which we are yet to see.'
David Pickstone, head of tax litigation, Stewarts Law: 'The Budget clearly indicates the government’s intention to continue to aggressively pursue those that they consider to have in some way evaded or avoided paying what HMRC maintains is the “right amount” of tax. The government’s stated goal is to recover £5bn from tax avoidance / evasion. A large proportion of this will presumably come from accelerated payments on disputed tax liabilities and large interest payments on now very old liabilities. It is debatable whether the government’s and HMRC’s approach to these historic liabilities is fair, as the end target is often an individual who thought (rightly or wrongly) that they were entering into a legitimate structure and are now in a very different financial position to the one they were in when they entered the schemes. More tax-driven insolvencies are likely to be on the agenda. The increased hostility to what was previously considered to be legitimate tax structuring is not going to drop down the government’s agenda. Increased responsibilities being placed upon financial intermediaries to inform their UK resident customers with overseas accounts of their obligations to disclose under the Common Reporting Standard; the further expansion of the DOTAS regime, including the increase in penalties for those who do not comply; and the implementation of further legislation to target those the government consider to be “serial avoiders” of tax are all evidence of a crackdown on those who seek to reduce their tax bill.'
David Brookes, tax partner at BDO: 'The chancellor previously said he was planning to raise £5bn from tax evasion and avoidance. This seems an optimistic target in the context of the sustained focus on tax avoidance in the previous parliament. However, the surprise move by the chancellor to committing £750m of additional resource to HMRC will help in achieving this target. This is a return to the ‘spend to save’ policies of previous governments and, on the surface, seem like a sensible move. However, our concern is that HMRC may direct these extra resources to easier targets by enquiring into the affairs of law abiding taxpayers who may have made innocent mistakes.'
Shiv Mahalingham, transfer pricing economist at Duff & Phelps: 'The additional anti-avoidance measures announced may further complicate an already complex system.'
Stella Amiss, tax partner at PwC: ;The government's manifesto had a much trailed target of £5bn from tackling tax avoidance. In the Budget the chancellor increased the target to £7.2bn but the description has changed to anti-avoidance and compliance. The target revenue will come from a raft of measures, including an additional £800m of investment in HMRC. The strategy seems to be about HMRC recouping more from every day compliance, rather than an expectation that the new anti-avoidance measures will raise significant sums.'
Frank Nash, Blick Rothenberg: 'Contrary to popular belief, the Conservatives have introduced more laws to counter tax evasion in the last 5 years than all governments over the last 25 years.'
Frank Haskew, head of ICAEW Tax Faculty: 'Significant progress has been made in the last parliament to tackle tax avoidance and the Government has started to get on top of tax avoidance, especially through the introduction last year of accelerated payment and follower notices. We need to make sure that further measures are properly targeted so they do not increase costs and burdens on legitimate business activity and growth.'
Heather Self, partner at Pinsent Masons: 'The manifesto commitment to raise £5bn a year from avoidance and evasion has been met by widening the definition to include “imbalances in the tax system”. For example, almost £1bn a year comes from removing the climate change levy exemption on renewable energy.'
Bill Dodwell, Deloitte:'The banking sector has asked for changes to the bank levy – and the government has agreed. The asset-based levy will reduce from 0.21% currently to 0.1% by 2021 –and will then apply only to UK operations. However, banking profits will face an 8% surcharge from 1 January 2016. It is better to charge tax on profits rather than on balance sheet size and the changes should support UK banking activities.'
Danny Beeton, transfer pricing economist, Duff & Phelps: 'The rhetoric against the financial services industry has been dialled down in recognition of the importance of this industry to UK growth and productivity. The measures to reduce the bank levy over time may stop a significant number of financial transactions migrating outside of the UK. The movement from a bank levy to a surcharge on bank profits seeks to restrict any negative impact on financial transactions and instead tax institutions.'
Matthew Barling, PwC banking tax partner: 'The reform and reduction in the bank levy will be welcomed particularly by those banks with large overseas operations. However, the long term phased nature of the reform coupled with the new profits based 8% corporation tax surcharge means that the overall tax burden on the banking sector will go up during this Parliament. This sends very much a mixed message in terms of competitiveness of the UK as a place for carrying on banking business.
Anna Anthony, EMEIA head of financial services tax at EY: 'A reduction in the rate and scope of the bank levy will be very welcome news for the sector, and can be seen as an acknowledgement from the government that the UK does need to remain a competitive location for global financial services companies. The introduction of an 8% surcharge sounds high, but is likely to be more acceptable than the levy because it at least has a direct link to the profitability of an institution. In addition, the fact that overall corporation tax is going to go down also helps ease the pain for banks of the surcharge. The banks will await with interest details of how the reduction of bank levy over six years will interact with the introduction of the surcharge on 1 January 2016, to determine whether they will be better or worse off in the short term.'
Dana Ward, head of financial services tax at Grant Thornton: 'The chancellor's announcement on the reduction of the bank levy will no doubt be welcomed by major banks, including HSBC, and UK business generally. The proposals to introduce a surcharge on profits is much more aligned with OECD fiscal policy of levying tax where profits are generated, rather than levying tax on a balance sheet basis which, frankly, acts as a disincentive to major banks doing business in the UK.'
The expectations of a real modernisation and simplification of the business rates system were raised again in the Budget. Simon Tivey, head of rating at PwC: 'Consultation fatigue is now setting in with yet another set of questions being directed at businesses, representative bodies and local authorities. Ratepayer forums will also be set up to consider how to reform the overloaded appeals system. The targeted reliefs introduced over the last few years, notably to help the retail sector, have been welcome in boosting the high street and tackling vacant shops. A new relief for local newspapers will help them move from heavily-rated properties, but how many one-off reliefs can the system bear? These reliefs are administered by councils under their discretionary rating powers and they already have the ability to identify and help ratepayer groups in need of support. That said, the government initiative will provide some focus.'
Nimesh Shah, Blick Rothenberg: 'The chancellor announced that tax relief for individual buy-to-let landlords will be restricted to the basic rate of tax, and this will be phased in from 6th April 2017 until relief is completely restricted to the basic rate by 2020/21. The Treasury projects this measure to raise £665m by 2020/21. What’s interesting is that the restriction applies to individuals owning properties and companies are not affected. With a further reduction in the main rate of corporation tax, companies may become even more popular structures for buy-to-let landlords.'
Robert Walker, PwC real estate partner: 'Today's changes do nothing to address the fundamental lack of supply in the UK housing market and ultimately may backfire and hit people who are having to rent. We could see buy-to-let investors feeling the squeeze and putting up rents. This would have a major impact on 'generation rent'. Moreover, if interest rates increase over the coming years, and rental yields don't keep pace, investors could be paying tax on a loss. Pensioners wanting to make the most of the recent savings freedoms could now be rethinking what they do with their pension pots. The chancellor is concerned about the level of funding in the buy-to-let market but today's proposals don't tackle this head-on. Some form of regulation or safeguards will be needed to avoid excessive buy-to-let mortgages, otherwise these changes will only fuel the current housing problems.'
Russell Gardner, EY’s UK head of real estate: '“The changes to buy-to-let will raise almost 2/3 of a billion by 2020, but will impact only a very narrow group. It hits UK individuals rather than professional outfits or non-residents. Landlords need to be both a higher rate income tax payer and a UK resident to be within scope, and at HMRC’s own estimate it will only hit 1 in 5 of individual landlords. This is unlikely to take much of the heat, including that generated by overseas buyers, out of the residential property market. The chancellor has also raised £200m in 2016 by removing the 10% exemption from wear and tear potentially replacing it with a relief for some actual costs. While all this may marginally dampen down buy-to-let as an investment proposition for the middle classes over time, we doubt people will sell. Despite the changes, buy-to-let still remains quite an attractive part of a broader investment portfolio.'
Brian Slater, chair of the CIOT’s Property Taxes Sub-committee: 'It is vital that adequate resources are devoted to explaining and publicising these quite complex changes that will affect a very large number of smaller landlords. Previous changes to the tax rules for deducting the cost of providing white goods such as free standing fridges, cookers and soft furnishings were introduced without adequate publicity. Inadequate information leads to inadvertent non-compliance and confusion.'
Ronan O'Regan, director, PwC energy and utilities: 'The removal of the climate change levy (CCL) exemption will reduce the level of support for renewable projects. CCL is paid by business and public sector customers but can be offset by a levy exempt certificate (LEC) earned by renewable energy projects. This will prevent non-UK renewable projects earning earning LEC revenue from selling their renewable energy in the UK. It will also impact existing UK renewable energy generators reducing their revenues today (5% for an onshore wind project), although the value of this revenue stream was expected to reduce over time as the market becomes over-supplied with LECs.'
Commenting on the announcement that exemption from CCL (the energy tax charged on supplies of gas, electricity and other energy products to business) is to end on 1 August 2015, Daniel Lyons, indirect tax partner at Deloitte, said: 'Since its introduction, climate change levy (CCL) has differentiated between electricity generated from renewable sources, and electricity generated from carbon fuels. Today’s announcement brings an end to the CCL-free treatment of renewable source electricity and once stocks have been consumed, future supplies of electricity will (with a few exceptions for certain energy intensive industries) attract the full rate of CCL. This measure is part of a change of focus by the government from providing support for renewable source generation indirectly, through CCL exemption, to a more direct approach, by entering long-term agreements with generators to guarantee future energy revenues. The government is also concerned that the financial benefit of CCL exemption has increasingly been available to offshore generators. This measure will bring that to an end. Market demand has meant that the cost of CCL free renewable source energy has been about the same as the cost of energy generated from carbon fuels and subject to CCL. This measure may have little impact on energy costs.'
David Hill, head of treasury tax, Grant Thornton: This measure updates the rules governing the taxation of loan relationships and derivative contracts by making changes to the computation of profits and losses on these instruments and the rules by which they are taxed. The major change is that taxation will be based primarily on amounts recognised in the profit or loss account rather than those recognised anywhere else – for example, in reserves or equity. In addition, the requirement that amounts to be brought into account for tax must "fairly represent" the profits, gains and losses arising, has been removed. These changes will be brought in from 1 January 2016. In addition, there are two other key changes which will have effect on or after royal assent of the Summer Finance Bill 2015, being:
The changes to the loan relationship and derivative contract rules highlighted in the measure have been developed over two years since the consultation document was originally issued. After the delay caused by the general election, it is good to see these changes being included in the Finance Bill. The targeted anti-avoidance rule may create some uncertainty for taxpayers as it relies on a purpose test, and similarly, certain conditions for the debt relief provisions feel subjective. It will be interesting to see how these and the other changes take effect in practice, and whether they achieve the simplification of taxation of corporate debt and derivative contracts, as intended by the measure.'
Chris Sanger, EY: 'Businesses were left with mixed messages from today's budget. The promise of cuts in corporation tax rate from 2017/18 was tempered by large business being the biggest funder of the chancellors' budget through the requirement to pay taxes 3 months earlier. This measure alone gave the chancellor almost £4.5bn in 2017/18 and echoes the change that Gordon Brown introduced in his first Budget, back in 1997. On a positive note, this cash flow raid also allowed the chancellor to fund the rise in the annual investment allowance to £200,000.'
Tina Riches, Smith & Williamson: 'The chancellor’s plans to accelerate the date corporation tax payments are due where profits exceed £20m for periods starting after 1 April 2017, will help boost the rate of cash flowing into the exchequer. The mirror image is an adverse impact on cashflow for larger corporates who will need to monitor their cashflow forecasts more carefully.
Heather Self, Pinsent Masons: 'Business will welcome the reduction in the rate of corporation tax to 18%, which the CBI called for in its submissions during the Coalition Government. However, the receipts from bringing forward the quarterly instalment payments more than outweigh the costs – under government cashflow accounting, receipts of £7.6bn are recorded in the two years from 2017, while the reduced rate has a total cost of £6.6bn over the forecast period.'
Stella Amiss, international tax partner at PwC: '[The announcement of future CT rate cuts] is a bold and surprise move. Business weren't calling for a further rate reduction, and it's expensive - £6.6bn over five years. But it sends a clear signal that the government is pro tax competition and this message may be helpful in attracting overseas business to UK shores. The anti-avoidance measures for corporates were relatively piecemeal - tinkering around the edges rather than making a big difference.'
Shiv Mahalingham, Duff & Phelps: 'The proposed reduction in the corporation tax rate to 18% brings the UK into competition with the statutory rates in Switzerland, Singapore and Hong Kong (and some Eastern European jurisdictions). This is a welcome change that will continue to bring foreign direct investment into the UK and dissuade businesses from relocating operations outside of the UK.'
Jonathan Hornby, Alvarez & Marsal Taxand: 'Corporates will have plenty of time to get their heads around the changes made to corporation tax payment dates. However, companies already often find they have over or under paid when their tax returns are submitted. Accelerating payment dates will only make forecasting less accurate and more tricky. Companies are also unlikely to have reliable forecasts produced for other purposes at such an early point. Essentially, this makes making accurate payments much more difficult. There’s currently no signs that the system will align more closely to income tax by allowing a use of previous profits to set tax payments. This would certainly be welcome. The lowering of corporate tax comes as a surprise. One potential impact is that this will be a disincentive to foreign investors. The low tax rate triggers anti-avoidance rules in the countries that still have high tax rates. We have already seen Japan react to prevent these avoidance rules from applying when the UK rate dropped to 20%. It remains to be seen if they will do so again.'
Stephanie Hyde, head of regions and executive board member at PwC: ;For companies across the UK, the prospect of the annual investment allowance falling to £25,000 may have hamstrung investment and damaged the economy. Now the chancellor has announced a ceiling of £200,000 it will take some of the pressure off small and medium-sized business when planning investment. This, coupled with the chancellor's efforts to keep the engine of the Northern Powerhouse firing on all cylinders is a shot in the arm for the UK economy. We have also seen a sustained push in this Budget to 'share the wealth' by devolving powers and budgets to boost local growth. Decentralisation is critical to the UK’s economic rebalancing across the regions. Too much centralisation leads to unbalanced growth and creates economic issues of its own. By moving more powers out of Whitehall, it will give the regions the tools to accelerate that process.'
Stephen Ibbotson, ICAEW director of business: 'There finally is some detail on Northern Powerhouses with powers given to councils, additional enterprise zones and planning reforms. Whether this could be described as helping to create a ‘power house’ is debatable.'
Richard Morley, partner, BDO: 'Although not mentioned at all in the chancellor’s speech, today it has been formally announced that HMRC will be given the powers to directly collect tax debts from an individual’s bank and building society accounts. The absence of any mention suggests the government was trying to sneak in this very unpopular policy, through the back door. It was originally announced in the 2014 Budget and will be applicable for tax debts over £1,000; this threshold suggests HMRC will be catching more than “big time” tax avoiders in its net. As part of a number of safeguards to be put in place taxpayers will be given the right to appeal through the courts before outstanding debts are removed from their accounts. Yet, despite this, as it pursues this policy, HMRC is going to need to reassure people that innocent taxpayers will not be caught out. If an individual has a joint bank account which holds £10k, and is shared 50:50 with a partner, HMRC is able to take up to £5k. However, a lot of questions still remain around whether the hardened debtor, who is likely to keep funds offshore, will be caught. HMRC can only seize money from UK bank accounts making it harder from them to get hold of funds outside the UK banking system. The devil is in the detail and it remains to be seen how this announcement will play out in practice.'
Alex Henderson, tax partner at PwC: 'The changes to the taxation of dividends remove the final vestiges of the system introduced in the early 1970s where a credit was given for tax paid by the company. The system aimed to relieve the impact of the double taxation of companies and shareholders on distributed profits. Overall the chancellor is expecting to raise £3.5bn from the change over the next 5 years. There are going to be some big losers as a result of this change. Entrepreneurs who pay out dividends in companies they own will see their tax rate increase by nearly 20% to 38.1% which is on top of the 20% paid by the company. It remains to be seen what effect this tax rise will have on enterprise. One consequence is that it become relatively more attractive for entrerpreneurs to sell up their business and retire as it could reduce their tax rate by between 10 and 18%'.
Tina Riches, Smith & Williamson: 'The proposed radical change to the dividend regime, due from 1 April 2016 to provide a tax free allowance of £5,000pa and less favourable tax rates of up to 38.1% for higher rate taxpayers, is likely to have a significant impact on tax-incentivised incorporation of businesses. The system, designed in tandem with the reduction in corporation tax rates, will lead to a more level playing field between business owners irrespective of the vehicle they trade through.'
Genevieve Moore, Blick Rothenberg: 'Personal service company owners attacked by new tax on dividends. A raid on the consultants who have taken advantage of low corporation tax rates. It was expected!'
Tim Stovold, Kingston Smith: 'Under the heading of simplification, the effective rate of corporation tax and income tax combined increases from 40 to 46% for a higher rate tax payer and similar increases for basic rate payers. This will encourage companies to pay large dividends in preparation of the increased rates applying which will give the chancellor a bumper tax collection in 2015/16 as dividend payments are accelerated.'
Mark Abbs, Blick Rothenberg: 'Discouraging entrepreneurial activity and enterprise by increasing the tax on dividends is the wrong thing to do at a time when we need the government to be doing everything it can to support and incentivise the small businesses that are the powerhouse of the UK economy.'
Craig Simpson, Baker Tilly’s national head of corporate tax: 'Fewer tax advantages for dividends? The chancellor has announced a major attack on the profit extraction strategy of small and medium sized businesses owners. On the one hand the reduction in corporation tax rates to 19% from 2017 and 18% 2020 will likely be offset by increases in dividend tax rates leaving the director shareholder worse off in most cases.
'Equalising benefits: The new rules are designed to move towards equalising the benefit of taking dividends rather than salary and have been highlighted due to the progressive lowering of corporation tax rates over recent times. Details of the new rules are sketchy at this stage but we know they will take effect from 6 April 2016 and revised rates of taxation have been announced.
'Situations it will impact: Under current rules it is common practice for a shareholder director to have a mix of salary and dividend. The main reason for paying the dividends being that in all cases the dividend is cheaper from a tax perspective than paying a bonus. For example, a small company which is owned jointly by a husband and wife where the corporate tax profits are less than £300,000 and the dividends paid to the shareholders are less than the higher rate income tax threshold would only pay corporate tax on the profit earned in the company and no additional income tax. In these circumstances the profits are taxed at an effective rate of 20% (i.e. just the corporate tax). Compare this to taking salary instead and the marginal rate on £1 of profit earned and extract jumps to just over 40%. For those subject to the higher and additional rate of income tax the differential in tax marginal tax rates per £1 of profit are lower but broadly the saving is around 9% when paying a dividend compared to salary.
'A balancing act: The changes announced today are aimed at in part correcting this imbalance but at first sight it seems that the changes will not completely remove the advantage to paying dividends. As at time of publication the Budget Tax Impact Note has not been published which might suggest some confusion within the Treasury.
What do we know? The new rules will introduce new dividend tax rates from 6 April 2016. The rates will be:
Income tax banding New rate Existing rate*
Basic rate 7.5% 0%
Higher rate 32.5% 25%
Additional rate 38.1% 30.56%
*rate of dividend net of 10% tax credit
'The rules will also include a £5,000 dividend exemption. It is not clear at this stage whether this will apply all dividend income irrespective of the amount received in a tax year or whether the £5,000 exemption is withdrawn if dividend income is above that level.
'What it means: On the face of it a 7.5% increase in income tax for shareholders in a private business will be very unwelcome and whilst it may be an attempt to correct an imbalance it is still a real tax increase. Whilst falling corporate tax rates are welcome, increasing taxes on extracting income will be a bitter pill to swallow for many. It is hard for that not to be seen as an attack on entrepreneurialism and enterprise for small and medium sized businesses who likely view the tax breaks from paying dividends as a way of correcting and imbalance for taking risk in setting up their own business and employing people.'
Matt Hall, head of tax, Wilkins Kennedy: 'These latest announcements will hit entrepreneurship where it hurts because there will be no incentive to grow a business into a larger organisation as those who receive significant dividend income will pay more. An entrepreneur with profits of £100,000 will see their annual tax bill increase by over £3,500. Small business already feeds the economy and are significant contributors to their communities as they create wealth and employment as they grow. Therefore to target them with further taxes could see entrepreneurship in the UK take a nosedive.'
Dermot Callinan, head of private client at KPMG: 'For the government to target almost £7bn in revenues from changes to the tax treatment of dividends, today’s announcement clearly represents a significant tax increase for people with high incomes. While a million people who receive dividends will see an effective £5,000 tax free allowance, the changes will increase top rate tax payers’ contributions by at least 25%. For all that, the chancellor wants to encourage saving, the new tax structure could discourage many high income investors from doing so. Savers should remember, however, that they can still receive up to £15,240 tax free through ISAs.'
|
|
Marginal (top) tax rate of income tax |
||
|
Tax rate |
20% (basic rate) |
40% (higher rate) |
45% (additional rate) |
|
Effective dividend tax rate now |
0 |
25% |
30.56% |
|
Post April 2016 (after £5,000 allowance*) |
7.57% |
32.5% |
38% |
* £5,000 allowance is equal to a 3.5% dividend on shares worth £140,000
John Hawksworth, chief economist at PwC: 'The chancellor has decided to end austerity a year later than planned in his March Budget, but with broadly the same end point of a small budget surplus by 2019/20. This results in a smoother profile of real spending cuts, which is sensible in allowing affected government departments, local authorities and households more time to adjust. But there is still a lot of pain to come. Welfare cuts totalling £12bn by 2019/20 will weigh heavily on lower income working age households, although the new national living wage will offset this for some workers. Unprotected government departments and local authorities will face a further Parliament on basic rations. Restricting public pay growth to 1% per annum for the next four years may be needed to get the deficit down, but will pose challenges in attracting and retaining talent to the public sector over a period when private sector earnings are likely to be growing at around 3-4% per annum. It is prudent for the chancellor to aim for a budget surplus as a buffer against future economic shocks at a time when initial public debt levels are high due to the legacy of the financial crisis. But it may not be sensible to aim to run overall budget surpluses indefinitely as this could unduly restrict the scope for the longer term public sector investment that Britain needs to strengthen its national infrastructure.'
Andrew Sentance, senior economic adviser, PwC: 'The Budget has set out in more detail how the chancellor will achieve a reduction in borrowing that he promised before the election. So for the financial markets and businesses, this provides stability and maintains consistency with the financial plans we have seen over the last five years. For business, there are swings and roundabouts. Corporation tax will be cut further. But by introducing the new national living wage, the chancellor is shifting some of the burden of supporting low income households from the public purse to employers.'
Mark Gregory, EY’s chief economist: 'The OBR's forecasts show the gamble implicit in the chancellor's Budget. With a fiscal squeeze - albeit slower than forecast in March - no expectations of a boost from trade, and a slowdown in consumer spending growth as welfare cuts bite, the chancellor needs productivity to accelerate to drive growth. The OBR's scenarios show that if productivity remains at the level of recent history, GDP will grow a third more slowly than under the base case of improving productivity. The OBR forecasts export growth of around 4% a year for the rest of this decade. UK exports might reach £650bn with a following wind but it will be a long way short of the magic trillion pound target.'
Ross Campbell, director of public sector at ICAEW: “While it is naturally good practice for the government to run a surplus when the sun shines, governments sometimes need the flexibility to run a deficit when circumstances demand. Our politicians and civil servants have a duty to act in the public interest. It seems an extraordinary proposal to legislate to constrain the fiscal policy choices of future elected governments, and one which looks more like a political manoeuvre than being about sound management of the public finances.'
Commenting on news that the employment allowance, will be increased to £3,000, Natalie Miller, president of the ATT, said: 'The government’s commitment to increasing and extending this allowance is welcome news and will provide a boost to businesses seeking to alleviate what can be a significant cost involved when taking on an employee. This is a positive contribution to the UK’s economic recovery. There has been concern voiced over the abuse of the employment allowance through the use of various schemes, which HMRC is working to combat. The government now intends to prevent businesses whose only employee is the sole director from claiming this allowance from 6 April 2016. The policy behind the employment allowance has always been to encourage and support businesses in recruiting staff, and not to help individuals to subsidise their own personal tax liabilities, so we think this is a fair move. Despite these concerns, this announcement proves that HMRC and the government are still keen to develop the positive outcomes that arise from this allowance. The increase to the allowance will also assist employers when the new national living wage becomes compulsory as this would be likely to increase employers’ costs otherwise. The increase in the employment allowance ought to now make the situation tax neutral and not deter any employer from recruiting the same amount of staff as under the current national ninimum wage.'
Jonathan Grant, director, PwC sustainability and climate change: 'There's not much in this budget that is new in supporting low carbon investment and transition. But the chancellor did highlight the government's support for a 'two degrees' deal in Paris later this year. We can't underestimate how ambitious this target is and the scale of shifts in energy and transport infrastructure required to achieve it. The changes needed are so rapid, they make the 'dash for gas' look pedestrian. We didn't hear much that was bold or brave to support the scale of change in infrastructure that two degrees implies. The Budget contains a mix of short-term measures, such as changes to the climate change levy and the sale of the Green Investment Bank, but not the long-term vision which many people wish to see.'
Neal Todd, partner, Berwin Leighton Painser: 'The combination of the chancellor's amendment to the non-domiciles rules coupled with the changes to the capital gains tax treatment of returns from investment funds will be a matter of concern for those working in the funds industry. The government went out of its way in the last Parliament to encourage funds to come on shore. It is to be hoped that today's measures will not detract from the attractiveness of the UK as a location for fund management.'
Neal Todd, partner, Berwin Leighton Paisner: 'It is disappointing that the chancellor has seen to fit to introduce penalties for tax planning that falls foul of the GAAR. The GAAR has only recently been introduced to the UK tax system (it became law in 2013) and its ambit is wide and uncertain. No case involved in the GAAR has yet come before the UK courts and it seems very premature for the government to be adding back bone to a weapon that has yet to be judicially tested.'
Tessa Lorimer, Withers: 'The government has decided to give the GAAR some teeth, no doubt arising from criticism previously levelled at the rule. Having given the public some time to familiarise themselves with the GAAR, the government clearly thinks now is the time to review it and strengthen its deterrent effect with a specific penalty.'
Heather Self, Pinsent Masons: 'Removing tax allowances on goodwill for acquisitions from today is a nasty surprise. The regime for taxation of goodwill has been in place since 2002, and such a sudden change is not justified for a measure which addresses an “imbalance” in the tax system, rather than aggressive avoidance.'
Commenting on plans to remove tax relief for goodwill and other intangible assets acquired by companies with immediate effect, Matt Hall, Wilkins Kennedy, said: 'The tax relief abolishment will have a knock on effect because businesses will no longer be able to claim relief against corporation tax – until the business is eventually sold. This is bound to have several implications and will be an unexpected, unwelcome result for businesses that are looking to sell. This could impact businesses looking to sell up in the short term and could even stall transactions that are in process.'
Stephen Hemmings, corporate tax director at Menzies: 'The restriction on the tax deductibility of purchased goodwill was one of the unexpected announcements, and could impact on the way transactions are structured from today. Amortisation of goodwill acquired on a trade and assets purchase will no longer be an allowable debit for corporation tax purposes. This means that the tax treatment will no longer follow the accounts where amortisation is recognised in the accounts, and where it is not, there is no longer the irrevocable election available of 4% per annum straight line tax relief. This will apply to accounting periods beginning on or after 8 July 2015. Relief will only be available going forward on a future onward disposal. This will be treated as a non-trade debit.'
David Kilshaw, EY's head of private client tax: 'The headline grabbing change - no IHT on homes up to £1m - will rightly be welcomed by homeowners. But these changes are complex. The chancellor’s changes conjure visions of “Addams’ family mansions” passing down the generations but the real monster here is the complexity. The present system is simple and works – the changes mark an unnecessary level of complexity. A straight forward £1m inheritance tax exemption would have been preferable. For most people the changes will have little impact given house prices across the UK. In reality the chancellor has simply introduced a “home counties IHT band”. The very rich will not benefit, due to the cap on the relief, and nor will many homeowners where their house is below the existing limits. The key message to homeowners in the £1million band is make a Will today if you want to ensure your home passes tax efficiently upon your death.'
Jo Bateson, private client tax partner at KPMG: 'This move on IHT was expected and is welcome. However it was a bit of a surprise to see that it is being phased in such that it won’t be implemented in full until 2020 and also that only direct descendants of married couples or those in civil partnerships with family homes will benefit. The basic, conventional ‘nil rate band’ of £325k has been frozen until 2021. The detail published today provides more clarity in particular that the £1m will be phased in over the next 4 years which is illustrated in the table below. The relief is available for those who downsize or cease to own a home from today's date provided that it is passed down to direct descendants (broadly children and grandchildren).
|
Year |
Nil Rate Band |
Main Residence Nil Rate Band |
Total |
Per Couple – for family house |
|
2015/16 |
£325k |
- |
£325k |
£650K |
|
2016/17 |
£325k |
- |
£325k |
£650K |
|
2017/18 |
£325k |
£100k |
£425K |
£850K |
|
2018/19 |
£325k |
£125k |
£450K |
£900K |
|
2019/20 |
£325k |
£150k |
£475K |
£950K |
|
2020/2021 |
£325k |
£175k |
£500K |
£1M |
Jo Bateson continued: “For direct descendants of couples with large family homes, today’s announcement represents a large saving in IHT. As an example, looking ahead, if a surviving spouse dies with a property worth £1.5m in 2017 their IHT bill falls from £260k (which is what it would have been prior to today's Budget) to £180k (a saving of £80k). If the same events take place in 2020 when the changes are fully implemented, this IHT bill falls to £120k (a saving of £140k on the same scenario before the changes took effect).
“However, for those whose estates do not include residential property, for example those in rented accommodation, smaller properties or with assets other than property (jewellery, art, savings etc), this relief does not appear to be available although they may be able to benefit from the downsizing relief depending on how this is worded. And children of unmarried parents or heirs who are not children won’t benefit. So for example: nieces and nephews would not be able to inherit a house from a wealthy aunt or uncle and neither would a biological child of unmarried parents qualify but a step-child with a married parent would be eligible.
“As expected, this relief is capped for the wealthy with the relief withdrawn for properties in excess of £2m. It is fully withdrawn for properties in excess of £2.35m (from 2020 when the relief is fully introduced) and personal representatives can nominate a property where more than one qualify.”
Paul Latham, managing director, Octopus Investments: 'Today’s announcement comes as no surprise. Official confirmation that the government will be gradually increasing the nil rate band on property people leave to their children or grandchildren will no doubt be welcomed by many. With a significant amount of people’s wealth in the UK tied up in their home, today’s news will provide comfort that their family can now benefit from this nest egg. The nil rate band for inheritance tax was fixed at the current level back in April 2009. Since then, house prices have soared by 44%, so it’s good to see the new family home allowance take account of this and bring IHT legislation in line with today’s property market.'
Vince McLoughlin, partner, Russell New: “The problem with inheritance tax is that many individuals caught under the £325,000 threshold feel they are leaving a relatively modest inheritance to their family and yet it is subject to a tax which is seen by many as intended to target wealthier people. The freezing of the IHT threshold coupled with rising house prices throughout large parts of the UK have made the current inheritance tax threshold somewhat inadequate and it’s the right time for a change. This is a tax which hits people who have worked hard throughout their lives and who simply want to provide for their children after they die. Building up a legacy for our children and grandchildren is one of the reasons we go to work in the morning. By announcing that the threshold will be raised, middle-class families who are not mega-rich should be able to leave their house to their children without having 40% taken off the value.
Frank Nash, Blick Rothenberg: 'The 2012 changes that introduced an annual tax charge (ATED) on families that held their homes in companies was a levy for those individuals, typically non-doms, who preferred the corporate ownership to mitigate inheritance tax. The gradual reduction in the property threshold from £2m to £500,000 by April 2016 brings more home owners into the ATED charge. The annual receipts for ATED were predicted to exceed £200m by April 2016. In addition, for those purchasing new homes in a corporate structure, SDLT at 15% is payable increasing the cost of sheltering property value from Inheritance Tax. By extending the inheritance tax charge to homes held in companies, there are now big incentives to take property back into individual ownership. In creating this incentive, the chancellor has put this immediate annual tax revenue at risk. Many families will remove their homes from companies, and hold them personally. Then they may well choose to insure against the risk of inheritance tax. The exchequer will get its inheritance tax eventually, but in the short term, there is every logic to believe that the £200m tax receipts from non-doms on UK residential homes may well be lost.'
Iain McCluskey, partner, PwC: 'This new relief will be a welcome boost for the families of those who have seen the value of their homes catapult upwards in the last 20 years. Also announced was a clever mechanism designed to help those who downsize earlier in life still getting this tax break. This should mean that the new rules do not lead to the elderly avoiding downsizing just to benefit from the new inheritance tax break. This move also is a further nod to the chancellor's tax simplification agenda - much like the savings reforms in the last Parliament - as it will take people out of the inheritance tax system without significant impact on tax revenues.'
Anita Monteith, ICAEW tax manager: 'The UK has one of the longest and most complicated tax codes in the world. Inheritance tax makes up a significant part of this, yet generates relatively low tax revenue. Linking the increase in the exemption specifically to a residence in an estate is adding further complication, although of course is still good news for those who will pay less tax. A general increase in the IHT threshold would have been much simpler.'
Lynne Rowland, Kingston Smith: 'Although the increase in the inheritance tax allowance to £1m is of course welcome, the restriction to main family residence will further increase the lack of family housing. At a time of acute housing shortage this cannot be the consequence the chancellor planned.'
Commenting on the announcement that IPT will be increased from 6% to 9.5%, Adrian Smith, global head of IPT at KPMG, said: 'IPT generates around £3bn per year for the UK government, so today’s increase will raise an additional £1.75bn. However the increase in IPT might result in general insurance policyholders having insufficient cover, as they seek to balance an increase in price with maintaining the cover they require. While 9.5% is still a reasonably low rate compared to other countries, it could be enough to tip the point for a customer to reduce their cover, or opt for no cover at all. We may also see businesses choose to insure with overseas insurers who do not always correctly account for UK IPT. UK-based insurers could struggle to compete with these overseas insurers who, by not correctly charging this tax, are able to offer lower premiums. However businesses must be careful as these providers may not necessarily have the same level of regulation as UK insurers and, therefore, policyholders may not benefit from the same level of protection. Overall it is unlikely to significantly impact insurers as most insurers have systems in place to react to such changes, having previously had the original inception of IPT and three standard rate increases to contend with. However the real challenge will be for UK insurers to help policyholders understand the balance between price and cover given the changes.'
David Bearman, EY: 'The rise in insurance premium tax (IPT) was unexpected, and while a headline rate of 9.5% doesn't sound significant, it is in fact an increase of more than 50% of the standard rate. As ever with rate rises, the most prominent concern is that it will drive a number of consumers to forego buying insurance, which increases their personal risks, and in the case of motor insurance could mean a rise in illegal drivers. UK insurers will now need to pay particular attention to policies and premium payments that extend beyond the deadline, if they don’t want to be caught out.'
Colin Graham, PwC global insurance tax leader: 'The Summer Budget will largely be viewed as mixed news by groups in the insurance sector. The chancellor has shown his commitment to ensuring Britain remains competitive by announcing a cut corporation tax to 18% by 2020. However insurance, particularly the London market, is a global business and it is important that the chancellor ensures the UK remains the most competitive place in the G20 to do business. However this positive feeling will be tempered by the rise in the standard rate of insurance premium tax to 9.5% from 1 November, changes to pension relief and greater regulation of claims management companies. It will be important that these new rules don’t create uncertainty and unnecessary cost for business. We are yet to see the detailed measures proposed.'
Mike Kelly, head of living wage at KPMG: “The new compulsory national living wage is very welcome news for the more than two million of the working poor who will get a significant pay rise. Enshrining the living wage in regulation is a brave move and by 2020 the national living wage will reach 60% of median earnings. For employers who are concerned at whether the increased payroll costs will be fully offset by reduced corporation tax and national insurance contributions, our experience has seen lower absence, increased productivity and a more engaged workforce.'
John Harding, employment tax partner at PwC: '[The introduction of the new national living wage ] is great news for the 1.4m people currently on the national minimum wage (NMW), as over the course of a year they will broadly see a 10% pay increase as they move to the new living wage. But businesses need to prepare for the significant increase in staff costs, especially as it will predate the reductions in corporate tax by a year. Employers should also be aware of the likelihood of short-term wage inflation among hourly paid workers due to the rises. Although this increase will only affect the over 25's they do make up a significant proportion of employees who are either on or just above the current NMW. Particular sectors affected will be retail, hospitality and cleaning, which make up over half of all employees on the NMW. As this will add to costs and make employing extra people less affordable, we will need to wait and see whether these measures will have the impact the chancellor wants on job creation.'
David Kilshaw, EY's head of private client tax: 'It is encouraging that the chancellor has recognised the contribution made by non-doms and has not abolished the regime. However, the non-dom status will become “time barred”. These changes will drive new behavior. We may see an upsurge on “boomerang non-doms” such as those who go overseas for five years to refresh their domicile status and then return to the UK. For those born to British parents, the chancellor has made domicile part of your DNA. A person born to a British father can no longer go offshore for a few years to acquire non-dom status. Goodbye to Gulliver’s travels.'
Alex Henderson, tax partner at PwC: 'The changes for non-doms weren't unexpected after the attention they received in the Election campaign, but are a game changer for those affected. Non doms who have been in the UK since 2002 will come within the full UK tax regime in 2017. All their overseas interests will need to be translated and understood in the UK, which can take weeks or months of work. Non-doms who face tax rises or complications as a result of the changes have a simple choice: get their affairs in order or prepare to leave the UK. The 15 year limit, which could be 13 unless you come on 6th April and leave on the 5th, isn't very long if, for example, you're wanting to educate your children in the UK. The change to bring non-UK companies holding UK property into the inheritance tax net was a little more of a surprise but consistent with changes in the last Parliament. This package of measures are ripe for review and integration now.'
Sophie Dworetzsky, partner, Withers: 'In the most seismic change in well over a decade to personal wealth tax policy, George Osborne, in what was meant to be an unfettered Tory Budget, today announced massive changes to the remittance basis. Currently non-domiciled UK residents contribute c£8.2bn annually to the economy. In an attack on the remittance basis, it was announced that after 15 out of 20 years of residence any non-domiciled resident will no longer have access to the remittance basis. Details need to be clarified, but let's hope that the chancellor hasn't played fast and loose with one of Britain's major appeals to international wealth creators and entrepreneurs.'
Andrew Sneddon, partner and head of tax, Trowers & Hamlins: 'It is not surprising that the government is targeting non-domiciled taxation rules, but there is concern that the abolition of permanent non-domiciled status for long-term residents risks an exodus of wealthy individuals prior to reaching 15 years residency. Such individuals will need to review their position before April 2017.'
Simon Baylis, Moore Stephens: 'These changes make the UK significantly less attractive to overseas high net worth individuals who contribute substantially to the UK’s tax base. The new ‘15 out of 20 years’ rule is likely to push a considerable number of high net worth individuals out of the UK. Most will not see moving to a more favourable jurisdiction as a major problem – they are already highly internationally mobile. For many of them, this will simply mean paying more attention to the number of days they spend in the UK, to ensure they remain non-resident for the year. Alongside the traditional choices such as Switzerland, some non-doms may target other jurisdictions such as Spain and Portugal as potential destinations if they leave. There are many factors, such as local wealth tax, to consider but in Portugal for example, ex-pats can reside in the country for up to ten years, and pay a flat 20% expat income tax on Portuguese income only. This may allow them to get back below the ‘15 out of 20 years’ barrier and then return to the UK.'
Shiv Mahalingham, Duff & Phelps: 'The non-dom changes announced may deter certain investors from the UK; however, many non-doms will not be impacted as the focus is on long term residents.'
Richard Morley, BDO: 'The chancellor, as expected has included changes, originally championed by Labour in a last minute election grab, to abolish the permanent non-dom status. The policy, which is expected to raise £1.5bn, means many more Brits will now be liable to pay full UK taxes from April 2017. Currently a UK resident non-domiciled (RND) individual can live in the UK for most, if not, all of their working life and claim to be a non-dom, and therefore reap the tax benefits. The announcement today specifically aims to address this and crack-down on long-term non doms which are resident in the UK, without an intention to remain indefinitely, as well as second generation non-doms who automatically claim the domicile of their ‘parent’ giving many non-dom status. Looking at the policy more closely, it does not appear to make any changes to the remittance basis which allows non-doms to use the status for free for the first seven years. However, it does appear to override the current deemed domicile provisions for inheritance tax (IHT) purposes, which meant that the worldwide assets for a RND became subject to UK IHT if they were a UK resident for 17 out of 20 years up to their date of death. These new rules may only result in a small number of current non-doms considering whether or not to leave the UK, but on the whole, this is unlikely to see a significant impact on the current levels of RND’s, nor those seeking to come to the UK.'
Nimesh Shah, Blick Rothenberg: 'Major changes announced to the non-domicile rules effectively mean that non-doms are taxed on their overseas income and capital gains after 15 years. This isn't aligned with the current rules on inheritance tax where a non-dom is brought into UK IHT after 17 years. It would make sense to align all three taxes but this wasn't mentioned by the chancellor.'
Alison Cartin, Berwin Leighton Paisner: 'There are extensive changes to the non-domicile status, which will have a significant impact on long-term UK resident non-doms. It may nevertheless be a relief to the globally wealthy and their advisers to see some clear, balanced thinking on this, in light of the press around the time of the election.'
Anita Monteith, ICAEW tax manager: 'The xhancellor has always had to tread a narrow path with non-doms, and the measures announced will appease the general public while ensuring that they continue to come and spend money in the UK.'
Jenny Wilson-Smith, a solicitor at Boodle Hatfield: 'Non-doms proved to be one of the more contentious election themes earlier in the year and reform was expected. However, the depth of the proposed reform is surprising. We will look forward to seeing the scope of the consultation and will be making representations to government to ensure that the new rules are workable. In addition, the chancellor announced restrictions to restrict the fairly widespread practice of non-doms owning UK homes through an offshore company/trust structure so that they are outside the UK inheritance tax net. To some extent the popularity of such arrangements has been eroded in recent years due to the imposition of an annual charge on properties owned in a corporate structure. The changes announced in yesterday’s Budget will abolish the IHT benefits of owning property in this way altogether which was quite unexpected and will require all affected clients to review their position and consider restructuring in advance of April 2017.'
Anita Monteith, ICAEW tax manager: 'Efforts to boost the Office for Tax Simplification are long overdue. The vast majority of red tape that burdens business comes in the form of tax regulation. Given that recent Finance Bills have been some of the longest on record, we are delighted that the OTS has been given some teeth to take this forward.'
Kevin Nicholson, head of tax at PwC: 'Expanding the role and capacity of the OTS could be a game changer for tax policy. The OTS needs the teeth to cut through the overgrowth of tax legislation. Moreover, the OTS can now be an independent arbiter of tax policy, making sure decisions are in the long term interest. Our research shows people and businesses are crying out for greater scrutiny of tax decisions. It's positive the government will commission the OTS to review the closer alignment of income tax and NICs. The personal allowance increases mean the national insurance and income tax rates are moving further apart, and this is creating all sorts of complications, not least that the lowest paid still pay tax.'
Richard Newby, Duff & Phelps: 'Although somewhat surprising, today’s lack of announcement about the advanced state of preparation of the UK’s new Patent Box regime, does not detract from the fact that the UK is clearly ahead of the pack of countries being obliged by the OECD Forum on Harmful Tax Practices (‘FHTP’) to revise their IP regimes. This week’s FHTP meeting in Paris now means that the UK very shortly will be able to release draft legislation for consultation and start to bring research and innovation back to the UK.'
Commenting on the chancellor’s Budget announcement of a green paper on whether pensions should be treated like ISAs, Mike Smedley, pensions partner at KPMG: 'We are fundamentally positive about any move to encourage the public to save more for their retirement. We welcome the fact that this consultation is taking place at an early stage and that the Government is open-minded on the outcome. Whatever the result, there needs to be an incentive in place to encourage people to tie up their money for long periods of time. Incentives for long-term savings need to be better than for short-term savings. If treatment was the same as ISAs it would be a back-door removal of the tax-free lump sum. It’s essential that the individual has certainty about the pensions system. Young savers need to know that their savings won’t be raided by future governments. Any changes that we see need to result in the right long-term system for savers. A change to an ISA-like tax system would benefit the Treasury, but it’s hard to see how it would encourage long-term saving. Equally, employers must stay ahead of any changes, review the savings products they provide to employees and encourage financial literacy. With all of this uncertainty people may not know where to put their money. This savings landscape needs to be clear and simple, otherwise those that want to save may end up thinking the safest place for it would be under the mattress.'
Jason Whyte, EY: 'While harmonising pensions and ISAs on the ISA model would simplify the tax regime it would mark another huge shift for savers, employers, the pensions industry and the future economy. If it goes through, he will receive a huge short-term windfall - unless consumers start saving less. But how much more change can savers take before they lose confidence in the system altogether? Can the industry and employers adapt when they are still reeling from the chancellor’s 2014 changes? Perhaps most importantly, there could be a risk to the future economy. A generation who save through pension ISAs will pay no further tax once they retire, while making ever increasing demands on the healthcare system. The tax revenue from their contributions will have been long spent. The scale of change contemplated is on a par with the Thatcher government’s reform of the housing market, so it is important that the government is going to consult through a Green Paper rather than just driving the change through.'
Peter McDonald, pensions partner, PwC: 'This review is long over-due as the tax treatment of pensions has got out of hand and is overly complicated. Continual changes have undermined confidence in pensions and this is a great chance to re-build that trust by overhauling how pensions are taxed once and for all. This could help address the fairness of tax relief for those members earning defined contribution versus defined benefit pensions. The government’s focus on encouraging a saving culture is good news. But turning taxation on its head, while convenient from a fiscal perspective, is really hard to communicate to consumers – especially those coming into auto enrolment for the first time, who often don’t have the support of employers' with long pensions history themselves. Saving for pensions and ISAs should be kept separate as there are clearly distinguishable goals – saving for old age versus earlier life events. The danger is that combining pensions and ISAs will confuse people’s savings and could leave people short at retirement. Consumers want both options and currently have this through their employer’s benefits programmes. Perhaps the tax advantage can be switchable, but funds need to remain separate. A radical change to taxing monies on their way in would effectively be a back door removal of the tax-free lump sum at retirement. It would be a major challenge for pension supporters if this was to happen, or if tax-free lump sum was to be removed for contributions already made. There is also a question now being implicitly raised by Government as to whether employers should enjoy tax relief on contributions to pay off defined benefit deficits. This could have a major impact on employers’ willingness to engage in supporting sustainable long-term savings of any kind. The public sector is not mentioned explicitly but as the largest area of continued defined benefit cost, one wonders whether the green paper will focus on the tax cost of these to the country?'
Stewart Hastie, pensions partner at KPMG: '[Budget announcement that the annual allowance for pension savings will be reduced from £40,000, to £10,000] will create headaches for employees, employers and pension schemes. By design, individuals going above the annual allowance are effectively being taxed twice. But under the proposals, a significant number of impacted individuals are unlikely to know what their Annual Allowance is until it is too late to do anything about it. Individuals may decide to restrict their pension savings to £10,000. Individuals will need more help and information from their employers and pension schemes. Employers and schemes must ensure they have the right processes and systems in place to cope with these changes.Employers will also need to consider wider benefits as pensions become significantly less valuable than just paying cash for a much wider range of the UK employees than ever before.'
Jason Whyte, EY: 'No surprise today on pensions tax relief – but maybe a nasty one later. As expected, the chancellor made changes to IHT and pensions tax relief that amount to “save less now, inherit more later”; today’s high earners won’t be able to save as much on a tax-free basis, but will be able to inherit the ancestral home and the remains of their parents’ pensions intact. People might spend money that would have gone into their pensions on subsidising retired parents to preserve their pension pots. There’s also a big question about whether these changes, which bring tax revenue forward, will create a revenue hole for a later government.'
Peter McDonald, PwC: 'This makes a complicated pensions tax system even more complicated. An ad-hoc change just disengages business leaders from the role of pensions in their organisations. Senior employees may now not bother saving into pensions. It sends a mixed message into society. Auto-enrolment is about engaging the shop floor and lower earners in pensions, but by disengaging bosses it feels that people are no longer all in this together. This creates a level of uncertainty and complexity for people earning around £120,000 or more a year, and could see a rush of these people coming out of salary sacrifice arrangements as they won’t know if they have breached the tax limit until the end of the tax year. We would encourage employers to undertake a review of their pensions salary sacrifice to understand who will be impacted by this dramatic change.'
David Kilshaw, EY: “The chancellor clearly wants to boost people’s pay packets… but it is a very small post-election thank you. We still have not seen an increase in the threshold at which NI is paid, which would have been helpful to the lower paid. And there is now almost a £3,000 difference in the limit at which NI and income tax bite. The chancellor announced an increase in the personal allowance to £11,000 with effect from 6 April 2016, rising to £11,200 by 2017/18. The £11,000 personal allowance represents an increase of £400 on the current rate and £200 from the allowance announced in the March Budget. In total, this represents an annual tax saving of just £80 per year for a basic rate tax payer. Nothing to write home about but the change to personal allowances will grab the chancellor some easy headlines. The chancellor has also confirmed that he will raise the level at which individuals start paying tax at 40% from £42,385 per year to £43,000 for 2016/17 rising to £43,600 for 2017/18. This, combined with the increase in the personal allowance, represents a further small saving for higher rate taxpayers in 2015/16.'
Iain McCluskey, tax partner at PwC: 'The personal allowance increased by almost 30% above the rate of inflation in the last parliament, and powers on towards his end of parliament target of £12,500. For some, this will mean an end to paying income tax altogether, though many of the lowest earners like apprentices and part time workers won't benefit as their earnings are less than the current personal allowance. It is also important to remember the lowest paid still pay national insurance, a tax in all but name. There is now a big difference between these two key lower limits in the tax system, and to truly take the lower paid out of income taxes, then the national insurance lower earnings limit needs to align with the personal allowance.'
Chris Groves, Withers: 'Higher earners, who may consider themselves dyed in the wool Tories, may be wondering what they voted for in May. While raising tax thresholds may reduce tax burdens, the abolition of the dividend tax credit, restrictions on bank interest deductions for buy-to-let properties and the reduction of pension tax relief will hit those persons hard. Lower earners, who may not consider themselves the natural constituency of the Conservative party, will be wondering if even the Labour party could have delivered such a positive budget.'
Alex Henderson, tax partner at PwC: 'The changes to the taxation of private equity carried interest bring to an end a basis of taxation agreed with HMRC as long ago as 1987 when the industry was in its infancy. This is one of a series of changes that have affected the way the industry has been taxed in recent Budgets and reflects the chancellor's progressive tightening of the tax regime and withdrawal of reliefs. Those affected will have to hope that other changes in the Budget will have a positive effect on the economy which feeds through into deal values. The worry will be is this the end of the road for tax on the private equity industry.'
Paul Smith, Blick Rothemberg: 'The chancellor has indicated that the “base cost shifting” rules, which allow private equity executives to pay very low levels of tax on their “carried interest” profits, will be abolished. However, his statement indicates such profits will still be taxed at capital gains rate rather than income tax rates'.
Tina Hallet, head of public sector, PwC: 'The Budget has flagged productivity and skills plans - the detail will be critical later this week. Dealing with the deficit is as much about controlling costs as it is about supporting growth. We need to be building towards a pro-growth Spending Review prioritising education and skills, infrastructure, R&D, business support and access to finance. This would also support the drive to decentralise and broaden the scope to create many, not just one, ‘powerhouse’. We heard about asset sales in the Budget, but generally we need to release more value from public sector assets: this should be a challenge put to departments as part of the Spending Review.'
Nick C Jones, director, PwC: 'Given the scale of the remaining challenge, a multi-year settlement in the Spending Review would give departments the real stability and an opportunity to focus on the long-term gains while going through the short-term pains of deeper cuts in unprotected departments, with a focus on outcomes for the public and businesses. With £12bn welfare cuts and £5bn in tax avoidance measures, the rest of the planned £37bn fiscal consolidation will fall heavily on those departments outside the ring fence. Local government in particular could face further significant cuts. At a time when the push is to decentralise, this puts a premium on those areas with strong leadership, capability and capacity across partners across a region, potentially larger than the traditional city, town or regional boundaries. The Spending Review provides the ideal opportunity to incentivise decentralisation, encouraging departments to identify the funding and powers that could be devolved.'
Jo Bateson, private client tax partner at KPMG: 'Landlords are buy to let losers but rent a room winners as a result of today’s Summer Budget. On rent a room, the annual tax free allowance has been raised to £7,500 a year meaning that a householder could let out a room for £144 a week before becoming liable to any tax on the income. This is a whopping 76% increase on the old allowance of £4,250. With the growth of the ‘sharing economy’ and a rising number of people seeking Monday to Friday rentals in city centres, this could prove a very valuable break for householders on a tight budget lucky enough to have a spare room. On buy to let, landlords will face a restriction in their ability to offset mortgage interest (which will be capped at the basic rate of income tax, phased in over 4 years, starting from April 2017) and, from next April, the annual ‘wear and tear’ allowance will be replaced with a new system under which they can only deduct costs they actually incur. For a higher rate landlord with rental profits of £15,000 and mortgage interest of £3,000, these changes will cost £1,200 when fully in force in 2020 which increases the effective tax rate from 24% to 32%. It will be interesting to see whether buy to let landlords decide to keep their property portfolios or sell up ahead of the changes. They have some time to think about it since they won’t take effect until next April for wear and tear and the following year for the restriction on mortgage interest. If reasonably large numbers of landlords decide to sell up and significant amounts of second hand stock becomes available as a consequence, this could have an impact on the housing market and could cause problems for some developers reliant on investors to maintain the rate of sale. There is also some risk of rental rates rising as a result of fewer properties available creating a market squeeze and landlords seeking to compensate for increased costs. In order to avoid this, it would be helpful to see a longer-term commitment to accelerate the build of private rented sector stock, coupled with a more regulated market.'
Anthony Thomas, chairman of LITRG: 'This is very welcome news. LITRG has been calling for an increase in this limit for the past few years. Ideally, we would have also liked to see a commitment to up-rating the limit year by year. Rent-a-room relief allows people to receive tax-free income from renting out a room or rooms in their only or main residential property. The relief also applies to someone who rents out rooms in a guest house or bed & breakfast, provided that the property is also that individual’s main residence. Rent-a-room relief was first introduced with effect from 1992/93. The rate of the relief has been fixed at £4,250 since 1997/98. We made representations1 prior to the Budget 2013, calling for the relief to be up-rated, to reflect the increase in residential rents since 1997. We repeated our call in our 2015 Manifesto for Low-Income Taxpayers. The increase in the rent-a-room relief limit could not only help various groups, including first-time buyers, those struggling to meet mortgage payments and those seeking affordable housing. It may also allow some individuals to be taken out of self assessment, if they only complete a tax return because of rental income above the current rent-a-room relief limit.'
Ed Molyneux, CEO, FreeAgent: 'This Budget is a mixed bag for small businesses. On the one hand, there’s good news for growing business taking on staff as they’ll benefit from a higher employment allowance, but that will be hugely tempered by the introduction of a much higher living wage that they will have to pay those staff. However, there's no good news for small businesses who aren’t looking to take on staff. Directors of limited companies who are the only employee will no longer benefit from the employment allowance, which will be a big blow to them, and there are no new incentives or support for entrepreneurs launching a solo startup business. I would have liked to see IR35 being scrapped, or an overhaul of how VAT MOSS affects the very small businesses, but the main Budget announcements seem to be more focussed on very large companies or smaller businesses who are already enjoying success and are ready to grow. For the average freelancer, contractor or startup business, there’s not much to get excited about.'
Audrey Fearing, EY: 'Shared services providers will have to wait a little longer to find out exactly which additional public sector entities will benefit from inclusion in the VAT refund scheme. VAT is often a barrier to outsourcing in the public sector as it is ordinarily an additional cost, as such it can reduce and sometime remove any savings that can be achieved. The VAT refund scheme helps to ensure that this additional cost is neutralised. The anticipated extension of the type of public sector bodies eligible for this scheme has been delayed until a future Finance Bill. However the legislation will be backdated to April 2015, so the reliefs are in effect available now. Non-departmental public bodies should now be considering whether they should apply for the VAT refund scheme. This provides outsource providers with greater scope for working with these types of entities, helping them to deliver services.'
Tom Wilde, partner at Shoosmiths: 'The amendments announced to the venture capital schemes are generally more restrictive than those proposed earlier in the year, which suggests that the government has had feedback from the EU on its original proposals (and presumably therefore is fairly confident that the new proposals will receive state aid approval). New rules which prevent VCTs (whenever the money was raised and whether or not the investment is intended to be a qualifying holding) using their money to acquire shares, and a ban on both EIS and VCT money being used to acquire trades or assets have also been announced. Although we must wait until the detail is published next week in the Finance Bill, on the face of it this represents a new very significant restriction to the venture capital regimes. If it is as significant as it appears, then it is unfortunate and unhelpful that such a restriction was not part of the March consultation, and it would be interesting to understand the reasoning for this – was this a measure introduced at the last minute after responses to the March consultation highlighted the use of VCT and EIS funds in this way?'
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