After an eagerly awaited budget (with huge speculation on what it might contain) what did we learn about tax changes?
Many thought tax rates would go up, but in fact the manifesto pledges for income tax, national insurance and VAT have been respected: those rates, plus capital gains tax and inheritance tax rates, are unchanged. (The only increased rate was for corporation tax.)
Look a little more closely, however: although income tax personal allowances and thresholds are said to be "maintained" they are in fact being frozen – with the usual incremental increases to exempt amounts/allowances and marginal rates essentially cancelled until 2025/26.
There is a theme – inheritance tax thresholds will remain at their current levels up to and including 2025/26 as well (the basic nil rate band has now been frozen at £325k since 2009).
The pensions lifetime allowance has been frozen for the same period too, along with the capital gains tax annual exempt amount.
So not "tax increases" per se, but a number of measures (by broadly holding allowances and thresholds at their current levels) which are each projected to increase the tax take over the next five tax years. These changes had become widely expected – they had been well-reported by the time the Chancellor stood up…
The increase to corporation tax was also expected, with a new 25% rate to apply from 2023 (the current rate is 19%). This won’t apply to all companies, however, as the new top rate will only apply to companies with taxable profits of over £250,000. The existing 19% rate will remain for smaller companies with profits under £50,000 with tapering in between (although note not for most family investment companies, which it seems will suffer the new higher rates). (Higher rates will also apply for diverted profits tax (31%) and to banks which are subject to the bank surcharge – although the latter is to be reviewed given the 33% rate which would otherwise apply.)
There were however tax giveaways too – with new generous 130% capital allowances aimed at stimulating investment in plant and machinery, together with plans to legislate for a raft of reliefs planned for new "tax sites" in freeports.
It is perhaps a shame however that the new capital allowances, or "super deduction", will disappear in 2023, just before the rise in corporation tax – limiting their value. That timing may make it a stretch for many businesses to decide and implement their post-pandemic capital assets investment strategy, including deploying funds in order to benefit from it. Will the deadline be extended?
More broadly, whereas the headline increase in corporation tax lessens the UK's tax competitiveness, consultations on R&D tax relief and EMI incentives are welcome indications of support for innovation and a desire to promote international tax competitiveness.
There was ongoing support for the property market, too – with the current SDLT holiday extended. The temporary SDLT nil rate band of £500k will be extended until 30 June, then reduced to £250k until 30 September following which it will return to the usual £125k. (Note that the 2% additional SDLT surcharge for non-residents purchasing residential property will apply from 1 April 2021 as previously announced at the 2020 Budget.)
So: tax rises? Yes, but limited and mostly incremental and arguably by stealth, and the significant increase to corporation tax rate which many expected is deferred (with the intention that it will take effect only when the recovery is expected to be "durably underway").
A mixed bag! There's more to come, however, with a number of consultations on tax policy due to be published on 23 March 2021.
As ever don’t hesitate to get in touch with your usual contact to discuss any of the detail.