Spring Budget 2021
Prior to the Budget, there was much speculation about capital gains tax (CGT) reform and rises, substantive inheritance tax (IHT) reform and maybe even a wealth tax.
In the event, these did not materialise. Instead the Chancellor announced ‘stealth’ tax rises by a five-year freeze of personal allowances for income tax and CGT, and the IHT nil rate bands.
The bulk of the announcements concerned business taxes. In a departure from previous policy, the main corporation tax rate will rise to 25% from April 2023 on profits over £250K. The rate for small profits under £50k will remain at 19% and there will be tapered relief for businesses with profits between £50k and £250k. Close investment holding companies will not be eligible for the small profits rate. Companies within the charge to corporation tax that invest in plant and machinery on or after 1 April 2021 will temporarily benefit from increased reliefs for expenditure on plant and machinery until 31 March 2023 – the so-called ‘super-deduction’. To help UK businesses that have been pushed into a loss-making position, the period over which trading losses can be carried-back will be temporarily extended from the existing one year to three years, for both incorporated and unincorporated businesses. In addition, temporary reductions in VAT and business rates, mainly benefitting the tourism and hospitality sector, will be extended, and then phased out. It was announced that the criteria determining whether a holiday let is valued for business rates will be tightened up to account for actual days the property was rented and a separate consultation on fundamental reform of business rates has been published.
The major announcement for property development businesses was the introduction of a new, time limited tax on the largest residential property developers from 2022, principally to help fund the costs of cladding remediation. A consultation has now been published on this, to which we will be responding and on which we will report more at a later date. As predicted the temporary increase of the SDLT starting rate band threshold (from £125k to £500k) for residential property was extended until 30 June 2021 and thereafter will be gradually tapered away back to pre-pandemic levels by 1 October 2021. The impact of this for non-resident buyers is somewhat muted given the introduction of the 2% non-resident surcharge from 1 April 2021.
This article first appeared in our Spring 2021 edition of our Private Client & Tax Newsletter.