The budget appears to try to support families and businesses and does start to look forward to economic recovery post Covid. Perhaps not as much direct infrastructure spending as we might have expected, but various ideas are being flagged that start the commitment towards green credentials. Eight Freeports announced (low tax zones) to encourage inward investment in trade and jobs – including Felixstowe & Harwich, Humberside and a zone around East Midlands Airport. Remains to be seen how that develops but should have positive impact on trade and jobs in the respective regions.
The budget themes are managing the economy through Covid, restoring public finances, seeking to give confidence to the private sector and starting to build the future economy with a focus on green growth. Funding of £22bn for a new UK National Infrastructure bank to support regional and local economic growth and to help tackle climate change. Together with £1bn for a new Net Zero Innovation Fund to be allocated on a competitive basis to sectors including long term energy storage, floating offshore wind, biomass and regenerative agriculture.
In property, there will be an extension (3 months) of SDLT relief to 30th June - a great relief to agents, lawyers, vendors and purchasers alike who have been desperately trying to get sales completed in time to meet the previous deadline of 31st March. Rightmove estimate that 628,000 sales in total are still currently in the legal process across Great Britain, including those that were agreed last year and those that have been agreed so far this year. The nil rate threshold will be at £500,000 to the end of June and then £250,000 until the end of September, before returning to the usual threshold of £125,000 on 1st October 2021. More expensive properties will only be taxed on their value above those thresholds. So for the time being and in our markets, residential property sales are likely to be busy, particularly with landlords contemplating sales whilst the market remains relatively active and within the current period of reduced SDLT and known capital tax rates. There was a strong expectation that capital gains tax would be increased because of the Office of Tax Simplification’s initial report, but this has not happened. The fear of a significant increase in Capital Gains Tax has encouraged many transactions and restructuring of family business – and we see that continuing. It seems likely we may have the same concerns again in the Autumn, in the absence of announcements setting out a timetable for change before the Autumn statement.
The announcement of the new Mortgage Guarantee Scheme was also welcome news. Low-deposit mortgages have been largely withdrawn by lenders during the coronavirus pandemic, which means many first-time buyers have faced raising deposits of 15-20% in order to secure a loan. The new scheme, which launces in April, will enable home buyers to purchase homes priced up to £600,000 with a deposit of just 5%.
On first impressions, the increase in corporation tax of 19% to 25% in 2023 will affect many businesses we are involved with, but the taper arrangements for companies, will inform decisions for farms and estates involved in investment and diversification. With higher rate income tax at 40% (and higher at certain thresholds) and if capital tax rates do increase, should corporation tax remain in the mid 20%’s, the use of corporate structures is likely to increase further alongside partnership or sole trader businesses, although it does add complications to property ownership and trading and double tax on dividend . Accountancy advice needed for any changes.
• Income Tax - Freezing of Personal Allowance and Higher Tate Threshold at £12,570 and £50,270 up to and including the 2025/26 tax year. No change in rates.
• CGT annual exempt amount frozen up to and including 2025/26 at £12,300 (£6,150 for Trusts). No other changes which is good news, and from our perspective, it appears this Budget has been kind in that it leaves us broadly where we were before, but with the expectation of changes to come and potential capital tax storm clouds ahead. As a result, we expect to see further family reorganisation, business restructuring and assets sales / transfers through the rest of 2021 to plan for future succession and wealth preservation and to take advantage of the current capital tax climate.
• Pensions – no changes; with lifetime allowance for pension savings frozen at £1,073,100 until April 2026. Annual allowance remains at £40k. Interestingly the Government is to consult on measures to encourage investment by pension funds in a broader range of assets – could this herald the way for large scale pension fund allocation to residential long term let portfolios ? Given Govt’s stance to boost new homes numbers and perhaps make more affordable accommodation for the next generation of home owners or renters – perhaps.
• VAT – remain at 5% until end Sept 21 on hospitality and tourism sectors. A help to our diversified farm/rural tourism businesses and some of our commercial client base (food, drink and holiday accommodation). Then increasing to 12.5% for a transitional of 6 months Oct 21 to 31st March 22.
• Business Rates Relief – extension of relief for 3 months (Apr-June) and transitional relief for a further 6 months where rates will be charged at 33% of the normal rates . Important across our smaller business property and farm/rural diversification projects (that generally achieved 100% relief last year).
• SDLT – holiday extended until 30th June – good news for the housing market.
• Loss Carry Back Relief – for those incorporated or un-incorporated businesses with losses – temporary extension of carry back loss relief extended from 1 year to 3 years. For individuals (and those in trading partnerships) the amount of losses that can be carried back against to set against profits of previous years remains unlimited.
• IHT Relief’s no change – good news. Nil Rate band remains at £325k and frozen until April 2026.
• Corporation Tax - Increasing from 19% to 25% from 1st April 2023 (bad news – but will it still be the case by the time we get there?).
- Small Profits Rates in place at 19% for companies with profits below £50k.
- Marginal relief (between 19% and 25%) to be introduced for companies with annual profits between £50k and £250k.
• Super Capital Allowances – Introduction of a new super deduction allowance of 130% for most plant and machinery that would normally qualify for 18% writing down allowance .
- First year allowance of 50% on most plant and machinery that would normally qualify for the 6% writing down allowances in the special rate pool (e.g. electrical or lighting systems).
- But note these super capital allowances are only available for companies subject to corporation tax – not to sole traders and partnerships!
- In addition, they exclude used or second-hand assets or expenditure in relation to contracts entered into prior to 3rd March 2021 and additional conditions will need to be met for assets bought on HP. So care and accountancy advice needed.
- Annual Investment Allowance still available for those businesses not qualifying for super capital allowances or for used machinery purchases but due to reduce from current £1m to £200k on 1st Jan 2022
From our perspective, it appears this Budget has been kind in that it leaves us broadly where we were before, but with the expectation of changes to come and potential capital tax storm clouds still ahead. We look forward to recovery across the whole of the UK economy and the return of normality, which will help all of our client businesses and HM Treasury recoup some of their Covid debt.
9 out of 10 for Rishi Sunak.