George Osborne today delivered his latest budget, and one that was clearly aimed at the ’older voter’. Over the past weeks speculation and rumour was all about a ‘Budget for Business’.  A budget to maintain confidence in the economy with provisions aimed at helping to reduce energy costs, encourage exporters and rejuvenate the house building sector. With  the European elections just round the corner and the general election only 14 months away, there was little room for manoeuver and very little scope for tax giveaways.

It was not expected to be a great giveaway budget and the Chancellor did not disappoint in this respect. He chose to take this opportunity to make significant changes to the tax rules on savings and his ’Big Surprise’ was the major shake-up of the pensions regime ,which some commentators have suggested hails the demise of the annuity. Certainly the immediate stock market reaction was to wipe millions off the value of those insurance companies that are big players in the annuity market.

For savers and pensioners

So the budget focussed more on individuals, and possibly targeted at those individuals with more disposable income than others. The new measures to encourage saving  include an increase to the annual limit for an ISA to £15,000 and there will be no longer be a split between cash & investment ISAs. This will allow savers to shelter more savings from tax.  The ‘pensioner bond’ is seeking to make a comeback.

By April 2015 those with 'Defined Contribution' pension funds will see the removal of virtually all restrictions on flexible drawdowns.  The only restriction seems to be reaching the age of 55.  The tax charged on drawdowns will be at the pensioner’s marginal rate rather than the punitive 55% as currently.  In addition small pension funds will be easier to access.  The pensions industry is also going to be required to fund advice to individuals at retirement.  Reform of the pensions sector has been long overdue and will certainly help those just coming up to retirement.  We wait to see the reaction of the other political parties to this.**

** Breaking news: The other two main political parties have welcomed the pension reforms. It looks like the reforms are going to be adopted whoever wins the next election. 22/03/2014** 

For business

For large businesses, it was important not to make too many changes.  The Chancellor reminded us that corporation tax rates are continuing to fall (21% this April and 20% next year). By this he aligned, for the first time, the large company and small company rate.  This removes the strange anomaly of the marginal rate of Corporation tax at times being greater than the higher rate of corporation tax.   Medium sized companies will  be pleased to see that Annual Investment Allowance, which provides 100% tax relief for qualifying capital expenditure not just preserved but extended to cover the first £500,000 of expenditure (from £250,000). There were also some enhancements for R&D tax credit relief repayments. Small companies in truth got very little.

Tax avoidance

As expected, the Chancellor plans to take further steps he claims will help HMRC tackle tax avoidance. Paying ones ‘fair share’ was in evidence again.  We had already expected measures to allow HMRC to pursue upfront payments of tax when linked to a tax avoidance scheme or where it could be considered as abusive.   In addition he is seeking to give them powers to collect unpaid tax directly from a taxpayers bank account without the need for a court order.  These proposed powers have already brought much criticism from accounting bodies who point out many problems including putting other creditors of a taxpayer at a disadvantage.

Other measures

The proposed rule changes for LLPs prompted significant debate in the run up to the Budget. Maybe surprisingly, there were no major changes or delays to proposals announced today. However a report issued by the Office for Tax Simplification (OTS) has recommended updating the treatment of partnerships as the current “one size fits all” approach is seriously outdated.

In other measures:

  • The automatic exemption from capital gains tax for the final period of ownership of former principal private residences will be halved to 18 months from 5 April 2014. Individuals who have already moved out of their former residence may now find that they have an unexpected tax liability.
  • The choice of tax efficient investment vehicles grows wider every year with SEIS, EIS, VCT and now SI Relief. We expect the changes announced today to drive down the cost of these vehicles and refocus them on fuller risk investments.
  • New rules aimed at certain industries including recruitment and employment agencies will treat workers as employees rather than self-employed.
  • There are changes to the rules for: employment related securities and employment related securities options for internationally mobile employees
  • IHT charges on trusts
  • CFC rules to prevent profit shifting under the finance company exemption provisions
  • From April 2015, CGT to be charged on non-resident individuals disposing of UK residential property
  • A relaxation of the rules which limit tax losses on a change of control

If you would like to discuss any of the matters raised by the budget with our tax specialist please contact us.