Few days are met with more anticipation, and sometimes trepidation, than Budget day. This year’s set of announcements were a complex mixture of tax changes, in what will be the first revenue-neutral Budget of this Parliament.
Some gained and others found themselves worse off from proceedings. Among the winners were individuals, savers, higher rate taxpayers, small businesses and oil and gas companies. Those who fared less well were larger businesses, property investors and, potentially, people who like to indulge in a sugary drink.
With a penchant for sweet treats, many Scots will think that’s a sorer blow to take than a trip to the dentist… But, it’s worth remembering that the new levy on sugar will lie with the companies first and it’s yet to be seen whether the cost will be passed on to customers.
On the personal taxes front, the Chancellor decided to move faster in implementing the manifesto promises of higher personal allowances and lifting the higher rate threshold to £50,000. Estimates from the Treasury suggest that increasing the higher rate of income tax threshold to £45,000 from 2017 will take half a million people out of this tax band – the first reduction since 2010.
However, this is the last time the Chancellor will set an income tax rate for the whole of the UK, with the Scottish Rate of Income Tax (SRIT) being devolved to Holyrood. It will soon be up to the Scottish Government to set new thresholds, although significant changes would seem unlikely in the short to medium term without the ability to vary amendments to each band.
And, although the Budget confirms that there will be no changes to pensions, the Chancellor announced some good news for young savers by introducing a Lifetime ISA. Anyone under the age of 40 will be able to contribute £4,000 per year from 2017 and receive a government contribution of £1,000, until they are 50. The initiative sounds remarkably like a pensions ISA, but it was undoubtedly one of the most eye-catching announcements.
Continuing with people’s futures and, in a move to get people investing in companies rather than property, capital gains tax rates are being cut to 20% and 10% from April 2016 – they currently sit at 28% and 18%. But this won’t apply to gains from residential property and carried interest. Business rates are also being reformed – only to the benefit of those operating in the smallest properties.
Likewise, from 2017 rates will no longer be levied on 600,000 out of 1.8 million commercial properties – up from the current 385,000 exemption. From 2020 indexation of rates will drop from the old RPI measure to CPI – but larger businesses will be concerned by the long wait.
Nevertheless, property continues to be seen by the Chancellor as a strong source of revenue. Commercial property will move onto tiered rates, as with residential property; but the main rate goes up from 4% to 5%. There are also changes to ensure that property developers overseas pay UK tax on any development gains. Much of this won’t affect Scottish properties, with Land and Buildings Transaction Tax (LBTT) devolved to Holyrood; but that’s not to say these changes won’t influence things north of the border.
Among the other announcements, we’ll see the first instalment of Base Erosion and Profit Shifting (BEPS) measures – which will change international corporate taxation – adopted from 2017. The Treasury estimates that it will raise about £1.3 billion annually from limiting tax deductions for interest and financing costs, outlawing the use of hybrids schemes – arrangements where tax deductions are not matched with equivalent taxable income in another country – and introducing a withholding tax on some royalty payments.
Other BEPS measures, such as changes to the intercompany transfer pricing rules, will raise further amounts. All companies will benefit from the cut in corporation tax to 17% in 2020, making the UK an even more competitive place to do business.
And as we look internationally, taxing sales through digital platforms is one of the new challenges for revenue authorities. There will be a new £1,000 exemption for those selling unwanted goods, or occasionally renting out their spare room. Platforms such as on-line sellers are being required to provide more information to HMRC and may be required to take on joint liability with sellers for VAT payments to the Exchequer.
Overall, the measures are lengthy and much more study will be needed when the Finance Bill comes out on 24 March. We’ll also be waiting to see how the Scottish political parties will react in their manifestos, ahead of the Holyrood elections in May.
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