Market leading insight for tax experts
View online issue

What's missing from the Budget?

printer Mail

Reform of the SSE

James MacLachlan
Partner, Baker & McKenzie

A comparative weakness in the UK’s otherwise generally competitive regime for taxation of foreign profits of UK companies is the substantial shareholding exemption (SSE) which was introduced over 10 years ago. In its current form, the SSE is complex and hedged around by a variety of technical conditions which are often not satisfied in cases where, as a matter of policy and principle, a participation exemption for capital gains really should be available. In practice, these difficulties can sometimes be overcome by interposing a foreign (e.g. Dutch) sub-holding company between the UK parent and its underlying foreign subsidiaries and of course HMRC are generally willing to provide non-statutory SSE clearances even in cases where some technical conditions are not clearly met. This is not really a satisfactory state of affairs, however, and it would have been good to have seen a commitment in the Budget to consult on a wholesale reform and modernisation of the SSE.

Taxation of multinationals

Louise Higginbottom
Partner, Norton Rose

Despite the recent parliamentary and media furore over multinationals’ tax contribution, there are no concrete measures to address this. The reason for this is pretty clear; the ability to minimise tax through the use of supply chains and a minimal physical presence are the result of the historic consensus on allocation of taxing rights between source and residence country, the ceding of rights to impose withholding taxes and a degree of inter-jurisdictional competitive behaviour in establishing tax-favoured regimes and not imposing effective CFC-type charges. None of these can be addressed without a strong inter-governmental consensus; whilst the current OECD BEPS process will seek to reach this, it seems more likely that vested interests will result in tinkering around the edges (perhaps the recognition of new classes of intangible assets or a different way of transfer pricing intra-group intangible supplies) as opposed to a wholesale reform.

Changes to the remittance basis

Chris Groves
Partner, Withers

One notable absence from the budget was any reference to the remittance basis of taxation. This is an area that has been subject to near constant change, both major and minor, since 2008. However, the introduction of the remittance basis charge in 2008 seems to have taken the political heat away from resident non-domicilaries. This opened the door to some sensible amendments in this parliament, with the removal of currency gains from the charge to capital gains tax and the business investment relief. It can only be hoped that the absence of any further changes to the remittance basis leads to an extended period of stability for taxpayers. It is stability and the ability that that gives taxpayers to plan for the long-term that will be one of the UK’s key attractions in a competitive international economy.

An infrastructure allowance

Eloise Walker
Partner, Pinsent Masons

One glaring omission in the Budget (though a not unexpected one, sadly) was the continuing absence of any Infrastructure allowance. The government appears to be committed to the rhetoric of infrastructure funding (an extra £3bn/year promised from 2015/16 for infrastructure investment by the chancellor in his grand speech) without actually giving the private sector any tax incentive (or even level the playing field with ‘hot’ sectors such as TV and gaming) to do it. This is going to continue to hold back growth for the industry, and no amount of new committees (however august) is going to change that. All together now – 'What do we want? An infrastructure allowance! When do we want it? Now!’

Help for crowd funding

Craig Kemsley
Head of private client, London, Grant Thornton

The funding of start-up and growth capital is central to the government’s push to encourage business investment and the creation of private sector jobs. The enterprise finance guarantee scheme, which commenced in 2009, is intended to facilitate bank lending to business (the average loan size has been around £100,000). However, the number of loans approved under the scheme has fallen over the last year.

Another source of finance with increasing prominence is ‘crowd funding’ whereby groups of individuals make loans to businesses. In addition to the proposed new tax relief to encourage private investment in ‘social enterprise’ announced at Budget 2013, more could have been done to enhance the attractiveness of this type of funding, for example by introducing a more general tax relief on business loans either on the amount loaned or on interest receipts under such arrangements for a qualifying purpose.

Targeted (and popular!) changes to employee share plans

Matthew Findley
Partner, Pinsent Masons

If the government genuinely wanted to increase tax-efficient employee share ownership it should have adapted existing, popular models rather than introduce new and unpopular ones. Increases to the savings limit under sharesave plans and the caps on participation in the share incentive plan (SIP) are much more likely to boost the kind of tax-efficient share ownership the government would seem to support as compared to ‘employee shareholder’ status. The government could have gone further and reduced the period of time for which SIP shares have to be held to qualify for full tax relief from five years to three years. It could have gone further still and set an overall cap on SIP participation and allowed companies to decide how to use it rather than capping each individual element. The government should be commended for its commitment to wider employee share ownership but it should re-assess how existing, well-established plans could be improved to provide more appropriately targeted tax-efficient incentives.

Tackling the effective 60% income tax rate

Matthew Rowbotham
Senior Associate, Pinsent Masons

It seems particularly appropriate after a Budget during which the chancellor banged the drum of simplification (no more marginal corporation tax calculations and thousands lifted out of paying income tax altogether!) to highlight some of the unnecessary complexity which remains. The chancellor again failed to address the 60% effective income tax rate introduced by the previous chancellor, whereby the personal allowance is clawed back from those whose adjusted net income exceeds £100,000. One consequence of increasing the personal allowance so dramatically (very welcome for many of course) is that yet more people are dragged into this unfortunate bracket. Aspirations may be considerably dulled for someone who knows that their marginal income tax rate is 60%. The saving grace for this quirk is that its mechanism is so unnecessarily complicated that many probably don’t even realise that they are affected.

Employee bonuses: encouraging claw-back arrangements

Andrew Roycroft
Partner, Norton Rose

It is increasingly common for bonuses to be subject to claw-back arrangements. For boards of directors, and other stakeholders, this can be a useful tool to discourage risk-taking for short-term rewards by linking bonuses to long-term performance. The income tax and national insurance rules have not kept up with this development; indeed, they provide an incentive for employers to structure such arrangements in a way which defers most of the tax until the claw-back period expires. As a recent decision (Martin) illustrates, those with more straightforward arrangements pay tax upfront and are left to argue for a limited form of relief, for amounts clawed-back, under provisions which arguably were not intended for this purpose. If the government had announced changes to allow appropriate tax and national insurance adjustments in the event of claw-back, this would prevent tax from distorting claw-back arrangements. It might even provide a cash-flow benefit to the government.

Debt release rules

Mark Burgess
Tax partner, DLA Piper

The current state of the UK economy inevitably makes the taxation of ‘balance sheet restructurings’ – such as debt release, impairment and capitalisation – a hot topic. Given the importance of this subject it may have been reasonable to hope for a simplification of the relevant rules. This has not been forthcoming. Although the UK legislation is generally favourable in comparison with the rules in other jurisdictions (and it is often possible to structure matters so as to achieve an acceptable position for all parties), the intricacies of falling within relevant provisions of the legislation often seem unnecessarily complicated. For example, the lack of clarity around HMRC’s interpretation of when a release of debt can be said to be ‘in consideration of shares’ often creates genuine uncertainty for the parties to a transaction - a ‘safe harbour’ for transactions involving banks releasing debt for ordinary shares which the bank intends to retain would be very welcome.

Allowances for capital expenditure on buildings

Richard Woolich
Tax partner, DLA Piper

The government appears keen to introduce sensible reliefs which serve to boost investment and the economy and are not liable to be abused by the rich. The seed enterprise investment scheme (SEIS) and the introduction of ATL (above the line) tax credit for research and development credits are two such examples, albeit relatively modest. In this context, it is difficult to understand why the government has not introduced allowances for capital expenditure on buildings. Since the abolition of industrial buildings allowances, there has been a gaping hole here. Especially with corporation tax rates falling (so the allowances would be worthless), this would be an excellent opportunity to boost investment in buildings, the real estate investment industry, employment and the construction industry generally. There is no need to make a distinction between industrial and other commercial buildings in the current climate. A simple to operate writing down allowance of 8% per annum (equivalent to the rate available for integral features allowances) would be extremely well received.

SEIS: be bolder!

Martin Lamber
Head of international and corporate tax, Grant Thornton

The seed enterprise investment scheme (SEIS) offers the most attractive tax reliefs of any of the venture capital tax reliefs, but if it is to be successful in encouraging entrepreneurial companies, the investment limits are far too low. In particular, the restriction of gross assets before the share issue to £200,000 and the requirement that the qualifying activity must be less than two years old will mean that companies that require further tranches of finance may not be able to access the scheme. Also, the requirement that an investor (together with associates) cannot hold more than 30% of the share capital means that companies often need to find a number of investors in order to offer qualifying shares, a task that is difficult for small trading companies. Finally, the size of finance that can be raised prevents the company from taking proper professional advice at the outset – a recipe for disaster.

Another bite of the pie…

Daniel Lyons
VAT partner, Deloitte

Last year’s Budget created quite a storm when some fairly sensible suggestions to remove an anomaly in the food zero-rating provisions became the subject of an intense media campaign – the so-called ‘pastygate’ affair. HMRC was forced into something of a u-turn so that the law now distinguishes between, say, two different pies. The first pie is bought by a hungry customer and is hot. However, it has just been removed from a cabinet where it is subject to a ‘natural cooling process’ and so can be zero-rated. The second pie is bought by a similarly hungry customer and is similarly hot. However, it has just been removed from a cabinet which slows down the ‘natural cooling process’ – it is subject to the standard rate of VAT. To anyone not versed in the wonderful world of VAT this might appear to be a somewhat odd distinction. Go on HMRC – take another bite of the pie!

The encroachment of overseas tax codes

Michael Alliston
Associate, Herbert Smith Freehills

As well as navigating the creaking UK tax systems, UK businesses are increasingly being asked to understand and deal with overseas tax codes. First FATCA and now the proposed European FTT. Unlike with FATCA, where the UK government moved swiftly during 2012 to mitigate the possibility of US withholding and give clarity to UK financial institutions, a huge question-mark still looms over the potential impact of the EU FTT. The recent draft directive indicates that UK entities may still be liable merely by virtue of where the counterparty is based or the issuance of the instrument. With a proposed implementation date of 1 January 2014, the Budget was a missed opportunity to give comfort to UK businesses on the impact of such extra-territoriality and potential double taxation. For a Government whose stated aim has been to make the UK tax system more territorial, the increasing extra-territoriality of overseas taxes must be particularly galling.

GAARne but not forgTAARn

Pindy Gainda
Senior associate, Herbert Smith Freehills

Whilst the summary of responses to the GAAR published in December would have meant that no-one should have been expecting any great bonfire of existing TAARs, some may have been hoping for a slowdown in the annual rate at which they are generated. Not so. This year’s Budget sees the introduction of around 14 substantive measures aimed at stopping avoidance. There is a deeper worry here than just that of the continued increase in the complexity of the tax code. This is that not even HMRC are certain as to how the GAAR will be applied in practice and until they are, there will be no let-up in the use of TAARs. Although not a huge concern for HMRC (as retroactive legislation is an option if the GAAR doesn’t work out as intended) what does this level of uncertainty achieve for the UK in a year where its growth forecast for 2013 was cut in half?

Repeal of stamp taxes on shares

Richard Croker
Head of tax, CMS Cameron McKenna

The abolition of SDRT on OEICs and unit trusts and of stamp duty on AIM share transfers is welcome but the City needs the stamp taxes on main market transactions to be done away with soon. With the looming EU financial transactions tax looking set to affect most UK trades there will otherwise be a double whammy for the London Stock Exchange.

Addressing concern on BEPS

Nick Foster-Taylor
Head of transfer pricing, CMS Cameron McKenna

Addressing concern over ongoing base erosion and profit shifting was notably absent, although Osborne did mention the OECD initiatives in passing. As usual the potential upside of transfer pricing (TP) was trumpeted (inbound investment on the back of reduced CT and increased R&D tax credits), without the counterpoint of the ongoing demonisation of outbound payments to other countries offering similar tax incentives. The general assumption is that any UK transfer pricing reform will follow on the heels of the G8 process.

Real simplification

Alex Henderson
Senior tax partner, PwC

I’d have liked to have seen more done to simplify the tax regime. We saw one step, with the government creating a single rate of corporation tax by unifying the small profits rate and the main rate in 2015. But there wasn’t much else. It would have been a good opportunity to introduce sunset clauses on new legislation, which would provide a way of spring cleaning the tax system (the finance bill with notes stands once again at over 1000 pages). We could have seen areas of particular complexity simplified, as we saw when the transactions in securities anti-avoidance legislation, was overhauled. More typically, where legislation is reviewed we see new aspects added to what’s already there, as with the recent changes to the anti-avoidance legislation covering the taxation of overseas assets for individuals and trustees. A less complex tax system will be a more efficient tax system with benefits to everyone.

More to stimulate investment

Lucy Brennan
Partner, Saffery Champness

The government has done a lot to start the stimulation of growth, with the extension of the CGT exemption (albeit for ony 50% of the gain) for investment in SEIS for 2013/14 and in the construction industry by underwriting deposits for new homes. This is certainly a step in the right direction. However these are in isolated areas and the other measures in the Budget are unlikely to do much to trigger further investment elsewhere. A cut in CGT – perhaps from 28% down to 25% – would have been helpful to stimulate investment. Another consideration for a cut would be the recent reports that the tax increase has cost the Treasury with people holding on to assets rather than selling and being taxed at a higher rate.

Reform of capital allowances

Jeanette Edmiston
Technical manager, Portal Tax Claims

This Budget went some way towards incentivising business and giving everyone confidence to reinvest. However, slightly more wide-ranging measures could have been looked at – notably, changes that enhance the capital allowances scheme and remove the increasing admin burden. Currently reforms are made on a piecemeal basis, taking far too long and work on a ‘give with one hand and take away with the other’ basis. A glance at the new anti-avoidance rules and the clampdown on schemes involving capital allowances goes to show that, if anything, this is more of a minefield than ever. Even though the present scheme of allowances have been in place since just after the second world war, only about 10% of business takes proper advantage of them. They are not promoted well and voluminous legislation makes them appear too complex. A second look at capital allowances could easily pay for itself if it encourages investment.

SEIS: company formation correction should have been backdated

Christine Yuill
Senior associate, Pinsent Masons

The SEIS received a warm welcome when it was introduced in 2012 offering favourable tax reliefs to investors investing in small, early-stage companies. However, one of the unintended consequences of the SEIS legislation was that if a company had been established by a company formation agent before its shares were sold onto the ultimate owners, that company was disqualified from taking advantage of SEIS. FB 2013 will correct this to ensure that companies will not ‘inadvertently be disqualified’ from SEIS but only in relation to shares issued on or after 6 April 2013. It is unfortunate this was not backdated to 6 April 2012 given that a claim for SEIS relief can be made by investors until the fifth anniversary of 31 January following the end of the relevant tax year and therefore backdating the correction could still benefit investors who invested into otherwise qualifying SEIS companies in tax year 2012/13.

Moving patent box benefits 'above the line'

Steven Levine
Lead partner - technology taxes, Chantrey Vellacott DFK

The government spent the last two years consulting industry, accountants and other interested parties on the best way to incentivise engineers employed by large companies to liaise with their colleagues in their finance departments. It concluded by amending the R&D tax regime to an ‘above the line’ credit where it was previously shown as a ‘below the line’ benefit. This change is effective from 1 April 2013. As an example of joined-up thinking, they will on the same day introduce a special 10% tax rate for those companies that benefit from products that they have developed and then patented as a ‘below the line’ tax saving. Why couldn’t the government have introduced a patent box where the benefits could also have been reported ‘above the line’?

SDLT holiday

Justin Bond
Tax director, Chantrey Vellacott DFK

Budget 2013 introduced a number of measures in an attempt to stimulate the housing market, particularly for first-time buyers. These included financing shared equity loans on up to 20% of the value of the property and the government mortgage guarantee scheme, due to run for three years from 2014. However, SDLT continues to be a significant burden and additional cost, especially for first-time buyers, and it is unfortunate that that the chancellor decided not to go further. It would have been extremely helpful to the housing market if a new SDLT holiday, similar to that in place between 2010 and 2012, had been introduced with a temporary extension of the nil rate band to say £250,000 for a period of two years for residential property.

SDLT reliefs for high value residential properties

Peter Jackson
Head of tax, Taylor Wessing

The regime for taxation of enveloped high value UK residential property has three elements intended to comprise a ‘package’ but these have been introduced under different rules and with different commencement dates such that the measures currently lack integration and coherence. In particular, it is regretted that the Budget did not address the anomaly that the 15% SDLT charge, which came into effect in March 2012, will not benefit from the extended reliefs concerning property trading and development and property rental investment businesses until Royal Assent to FA 2013, whereas these reliefs will apply to the annual residential property tax and new CGT regime as from 1 April 2013 and 6 April 2013 respectively. This is likely to create delays in implementing certain commercial transactions involving the acquisition of high value residential property until Royal Assent to FA 2013.

SEIS and the capital gains exemption

Kevin Voller
Tax director, Chantrey Vellacott DFK

The weekly review of the broadsheet’s ‘your money’ sections still do not provide any stimulus for savers. So investors will continue to look for alternatives while the government wishes to stimulate investment in the private sector. The current government backed EIS and introduction of the SEIS in 2012/13 provided an alternative for investors with an appetite for risk. But why restrict the SEIS capital gain exemption to 50% for 2013/14? Surely HMRC should be encouraging further investment into the private sector. Why not extend these attractive reliefs to the entrepreneurs themselves who are often the initial financial backers for such enterprises and help boost activity in the UK economy.

IHT and the nil rate band

Tony Elliott
Tax director, Chantrey Vellacott DFK

With IHT collections representing a mere 0.61% of tax revenues in 2011/12, the chancellor had a real opportunity to offer a radical shake up of the IHT regime without adversely affecting total tax take. The Conservative party pledged a nil rate band of £1m for every individual which would have taken the vast majority of households out of the IHT regime altogether. A token £4,000 increase in the nil rate band was offered at the last Budget to become effective from April 2015. Instead of the anticipated shake up, hidden away in the depths of the HM Treasury Notes is the statement that the nil rate band will be frozen at its current level until 5 April 2018 – this is a measure that ‘supersedes previous announcements on the level of the threshold’. Not even an inflationary increase will mean more households dragged in to the IHT net.

Alignment of BPR and ER rules for JV companies

Mark Baycroft
Tax director, Chantrey Vellacott DFK

The current legislation for entrepreneur’s relief (ER) provides that where a company has a shareholding of 50% or less in a joint venture company (a joint venture shareholding) then the company’s activities, for the purposes of the ‘substantially trading’ test, include its share of the joint venture company’s activities. The current legislation for business property relief (BPR) provides that where a company has a joint venture shareholding then the company’s activities, for the purposes of the ‘wholly or mainly trading’ test, do not include its share of the joint venture company’s activities. Instead the company’s joint venture shareholding is treated as an investment. This discrepancy discourages longer term participation in successful joint venture companies by owner managed companies at a time when successful partnerships between owner managed companies and large corporate could stimulate economic growth.

VAT refund scheme for charities

Peter Ladanyi
VAT director, Chantrey Vellacott DFK

The government has missed the opportunity to work out an effective VAT refund scheme for charities. The absence of such a mechanism causes problems with the voluntary sector taking over government functions and is highly distortive. It is unclear that such a scheme would actually be expensive as irrecoverable VAT is often factored into existing grant or funding bids, albeit inaccurately. When a direct VAT refund was introduced for academy schools the amount of VAT repaid was often less than had previously been paid under the estimate included in a schools budget.

Capital allowances and distressed deals

Heather Self
Partner, Pinsent Masons

The proposal to extend CAA 2001 Chapter 16A is a missed opportunity to smooth the path of distressed company acquisitions. Instead, additional compliance burdens will be imposed on many transactions, and some deals will no doubt fail as a result. Capital allowances are currently restricted where there is an excess of tax written down value over book value, and there is a change of ownership with an ‘unallowable purpose’. The rules are to be extended to circumstances where the acquisition is not tax-motivated but there are excess capital allowances of at least £2m which are ‘not an insignificant benefit’. This additional complexity is disproportionate: the capital expenditure is genuine and there is no tax motive to the deal. What is worse, it is to apply from 20 March 2013 so will affect transactions already at an advanced stage on Budget Day. It is, however, just possible that Ministers will think again: draft legislation is to be published ‘for technical consultation’ on 28 March 2013.

The missing middle

Stephen Herring
Senior tax partner, BDO

In my view, the two most important missing features of Budget 2012 can be encompassed by the word ‘middle’. Firstly, so far as business taxation is concerned, the coalition government’s budgets, including the March 2013 Budget, have focused upon the largest and the smallest companies. For example, last week’s Budget included a further cut in corporation tax to 20% for those larger companies with taxable profits in excess of £300,000 from April 2015 and a fixed credit of £2,000 against an employer’s national insurance liabilities which is focused upon the ‘micro-businesses. There was little in the way of tax reforms for businesses not at either end of this spectrum. We would have liked to see such companies being, for example, allowed to elect for a tax transparent treatment on a similar basis to ‘S-corporations’ in the USA.

Secondly, so far as personal taxation is concerned, the chancellor needs to engage a little more imagination than merely clawing back the advantage of increases in personal allowances from the better paid by annual reductions in the basic rate tax band. The reduction of the basic rate tax band to £31,865 for 2014/15 announced in Budget 2013 represents the fourth year of annual reductions. The result is that more and more modestly remunerated taxpayers will be paying at the 40% income tax rate each year. This rate is now suffered by those earning less than twice median earnings (which are currently around £26,500 per annum).

A statutory BPR test for furnished lettings

Ian Maston
Partner, Gabelle

The Upper Tribunal’s decision to deny BPR to a furnished holiday let in HMRC v Pawson (overturning the First-tier Tribunal’s decision to allow it) has turned the tax position on its head. Whereas, following the FTT’s decision, the owners of most furnished holiday lets might expect to attract BPR, very few are now likely to be so bold. The income and CGT rules set clear statutory parameters to determine when such businesses can be counted as ‘trades’ – by reference to their availability, use, and the turnover of occupiers. Would it not make sense, and considerably simplify things for taxpayers, for the BPR position to be based upon the same statutory parameters?

Property construction costs

Vaughn Chown
Head of VAT, Gabelle

To kick start the building and construction industry, an opportunity was missed in this year’s Budget to reduce VAT from 20% to 5% on property construction costs. Applying the reduced rate of 5% for a year or two to construction services would have stimulated growth in the property sector, increasing jobs and benefitting all property owners. The new ‘help to buy’ schemes introduced for purchases of property are welcomed, but this is limited to those people buying new-build property that can afford the repayments on any borrowing required. People on limited incomes, struggling to meet mortgage and loan repayments, often cannot afford essential property repairs; a reduction of 15% in VAT would have greatly assisted them, as well as providing more jobs in the construction industry.

Income tax and disincorporation relief

Paula Tallon
Managing partner, Gabelle

The proposed provisions for disincorporation are of limited use as there is no relief for the income tax charges associated with it. It would have been good to see this relief being considered further so that there is some real benefit to small businesses. The income tax charges associated with disincorporation will deter companies from disincorporating.

Correcting ‘drive by’ legislation

Pete Miller
Partner, The Miller Partnership

The missed opportunity is that of putting legislation right after it has been enacted. There is too much ‘drive by’ legislating, where HMRC concentrates on a topic for a few months or years, legislates, then forgets it. If we discover errors or unintended consequences, HMRC never finds legislative time to put things right. Here are a couple of examples:

  • In March 2012, CTA 2010 s 1030A replaced ESC C16. The concession allowed taxpayers to choose between income and capital treatment for distributions preparatory to striking off under CA 2006 s 1003. Very few people seem to have spotted that the new legislation, intended to ‘replicate’ the concession, no longer gives a choice: if the distribution is in anticipation of striking off, it is capital, regardless of the taxpayers’ requirements. This has been pointed out to HMRC, but ignored, presumably on the normal basis that there isn’t sufficient parliamentary time.
  • In 2011, we had a new relief within the substantial shareholdings exemption, intended, as far as those of us involved in consultation understood, to allow a company with more than one trade to ‘package’ a trade into a subsidiary for sale, under the SSE. HMRC’s instructions (CG53080C) state that the legislation is to be interpreted as only applying if the company was a member of a group, which was not what we asked for in consultation, and bot what we were told we were getting. When tackled on this, HMRC was aware of the issue but said it was an easy issue to plan for!  So they accidentally (?) didn’t give us what we asked for and now they won’t put it right.

What is the point of consultation if HMRC won’t make time on the parliamentary agenda to correct errors in the legislation? No wonder people find themselves planning around the tax legislation: HMRC is actually telling us to do so rather than putting it right!

The art of being boring

Francesca Lagerberg
Incoming global leader - tax services, Grant Thornton

After last year’s raft of Budget issues that ended up being swiftly abandoned, it was good to see that the chancellor kept the tax changes short, focused and listened to business pleas for a tax system that isn’t subject to endless change. A ‘boring’ Budget can be good for business. I’d still like to see enhanced efforts to reduce administrative burdens, although an employment allowance delivered via the payroll, using existing processes, shows signs of a pragmatic understanding that good tax changes need to be simple to administer.

Residential property

Kersten Muller
Real estate partner, Grant Thornton

Budget 2013 delivered some good news for the construction industry with the impetus given to infrastructure projects and building residential dwellings. From a tax perspective there was little news: the changes to FA 2003 Sch 4A and the annual tax on enveloped dwellings (ATED) (previously called ARPT) had been announced in the Autumn Statement 2012. These changes are welcome but although they are part of Finance Bill 2013, they will not take effect until Royal Assent of the Finance Bill (expected in July 2013). It is also disappointing that ATED compliance has not been simplified. At present any non-natural person owning high value residential property has to file an ATED return, even when they can claim one of the (many) reliefs. It would seem appropriate to dispense with on-going filing of ATED returns where ownership and usage remains unchanged and no tax is due.

And finally…

Cannabis: a missed opportunity?

Tony Steinthal
International tax partner, Chantrey Vellacott DFK

The most significant item that is not in the 2013 Budget is the legalisation – and taxation – of cannabis. According to The Guardian website, 31% of 16–59 year olds admit to having used the drug. According to the Tobacco Manufacturers Association website, 20% of adults smoke, yielding £12.1bn annually to the Treasury in excise duty and VAT. The legalisation and taxation of cannabis at tobacco rates could therefore be estimated to yield annually 30/21sts of £12.1bn = £17bn – which, by way of illustration, is just about half of the defence budget, or three times the Department for Culture, Media & Sport’s budget.