I think it can be stated in all fairness that today’s budget was little to do with economics, but rather politics – a last ditch attempt to woe the electorate to voting conservative (or at least certainly no t labour) in the looming election
The pre-budget talk has been about giveaways and other sweeteners and the budget itself largely lived up to the hype. Besides pointing out the continued growth of the UK economy and the falling unemployment rate, a raft of radical tax changes were announced – Class 2 national insurance for the self employed will be abolished; the requirement to complete annual tax returns will also be removed for most people; the Annual Investment Allowance, due to fall to 25,000 next year from its current 500,000 will not fall as far (no new figure announced yet) and the increase of the tax-free personal allowance rising to 10,800 in April 2016 and 11,000 in April 2017. Also, to assist pensioners and those more reliant on their savings, a new tax regime for savings income was announced with a 1,000 tax free band being introduced from April 2016.
Many forecasted an attack on the tax relief for pension contributions – in particular the annual allowance; rather the attack was focussed on the lifetime allowance – it being reduced from 1.25million to 1million from next April. A general tightening up and clamping down on tax avoidance with greater focus on Entrepreneurs’ Relief for genuine businesses only and a review into the use of Deeds of Variation to avoid Inheritance Tax.
Greater relaxation of the ISA rules and a new ‘Help to Buy’ ISA to assist the first time buyer was also announced. No mention however of an increase in the Inheritance Tax nil rate band nor any changes to Capital Gains Tax or indeed Entrepreneurs’ Relief itself. This was very much a sales pitch, not only for what the coalition government has done over the last 5 years but what would be in store were a labour government refused office in 50 days’ time.
Pensions & Savings
Business owners will be disappointed that the Chancellor has reduced the amount they can save for retirement over their lifetime from 1.25m to 1m. Only a few years ago, the lifetime limit was 1.8m – so this represents a massive reduction in the ability to save for retirement.
The good news is that the annual allowance has not reduced as was feared, so the opportunity still exists to save a significant sum this year. Business owners may want to use this year’s allowance and any unused allowance for the last three years prior to the year end, rather than taking the risk that a new Government may reduce this in future years.
There will be a number of changes to savings but business owners may be most interested in the introduction of fully flexible ISAs. These new flexible ISAs will allow savers to withdraw from their ISA and reinvest into it in the same year without any loss of tax benefits.
Research & Development (R & D)
There has been simplification of R & D tax credits for smaller businesses whereby from autumn 2015 a small business can apply for advanced assurance lasting three years in respect of its initial R & D claim. The aim of this is to make the R & D tax credit process more straight forward.
Entrepreneurs Relief has been tightened up in respect of assets owned personally but used within a company. Of more concern could be other proposed changes that might limit the availability in certain circumstances, but the details of this remain to be seen.
Annual Investment Allowance
Business owners will be concerned that the Chancellor would not quantify the level of investment allowance applying from 1st January 2016, instead just confirming that the rate would not fall as far as 25,000 from the current level of 500,000.
Owners might therefore consider reviewing their capital expenditure plans and bringing them forward to this year where viable.
Suggestions that Inheritance Tax thresholds might be significantly increased, particularly in relation to the family home, proved unfounded. However, owners should remember the significant changes announced in the autumn in relation to passing their pension pots down the generations’ tax free, which is perhaps even more valuable.
A concern arises from the Chancellors comments regarding IHT savings through using Deeds of Variation. This means that he may intend to withdraw the flexibility to revisit the taxpayers Will within two years of death, making it ever more important to regularly review your estate planning.
Good news for businesses with high fuel costs as fuel duty has once again been frozen, meaning they can take full advantage of falling prices at the pump.
The Chancellor announced the doubling of UKTI resources to support UK exporters to China as well as prospective membership of the new Asian Infrastructure Investment Bank.
Whilst there were few headline grabbing announcements of particular relevance to business owners, most business owners will be encouraged by the Chancellor continuing to focus on providing a stable economic platform from which they can operate their businesses.
What do you think?