Headline points from the 2016 Budget for the rural economy and property. Get out of sugar, get into tunnelling, run a micro-business on the side, infrastructure needs you, take your capital gains now, incorporation is looking better and better unless you intend to sell your professional services to the public sector, drink whisky and beer not wine. Despite this, old age and death are beginning to look expensive.
A £3.5 bn reduction in public expenditure is not intended to dent George Osborne’s claim that, “We [ie the Conservative Government] are the builders”. Practically this means commitments to a new HS3, the Manchester to Leeds railway; an extra lane on the M62; a tunnel from Manchester to Sheffield and an upgrade of the transpennine A66 and A69 routes. This should all help the aspirations for the ‘Northern Powerhouse’. Other commitments include Crossrail 2 in London, a north-south railway to complement Crossrail (now the Elizabeth line).
Flood defence expenditure to be supported by a 0.5% raise in Insurance Premium Tax. This should raise £700 million and a review is to be initiated as to how to spend it. Meanwhile flood schemes in York, Leeds, Calder Valley, Carlisle and Cumbria were approved.
Business Rates: Small Business Rates Relief will be extended on a permanent basis with the rise in the threshold from £6,000 to £15,000. From 2020 the annual uplift in the percentage rate will be linked to CPI instead of RPI. In a Napoleonic moment Osborne referred to us as a ‘nation of shopkeepers’.
Incorporated businesses will also see Corporation Tax drop to 17% in April 2020, with other benefits for businesses which confine their trading to the UK. For example more flexible loss relief provisions should help 70,000 businesses. On the other hand, there will be restrictions on the use of personal service companies in the public sector to tackle the avoidance of Income Tax and a bundle of measures are targeted at international companies. These include an assurance that UK tax will be paid on UK property development, limits on tax relief on overborrowing in the UK in order to fund overseas investment and a withholding tax on royalty payments. Look out for a ‘Fit for the future Road Map’ for business taxation (road map? Shouldn’t that be a SatNav?).
VAT on ebay sales is to be sorted out, while small unincorporated businesses should see modest benefits from the removal of Class 2 National Insurance contributions from 2018. New reliefs for property and trading income up to £1,000 are to be introduced to help micro-entrepreneurs – the smallest traders making a few pounds by buying and selling on ebay or renting out the drive as a parking space.
Capital Gains Tax will drop from 28% and 18% respectively to 20% and 10% with new reliefs to be developed for long-term investment in unlisted companies. This might be helpful for family companies where shares are held by family members. No mention of the relationship of these new rates with Entrepreneurs’ Relief which already pegs CGT at 10% on relevant disposals.
More generous ISA allowances from April 2018 will raise the annual limit to £20,000. A new Lifetime ISA for under 40 year olds will allow younger people to save for a first house or a pension. The government will add another pound for every £4 saved up to an annual investment of £4,000. Further flexibilities are to be considered with regard to money withdrawn and then paid back in. Meanwhile the much feared changes to existing pension regimes did not materialise.
The Personal Allowance for Income Tax will be £11,500 from April 2017, and the threshold for Higher Rate Income Tax (40%) goes up to £45,000 from the same date. This should put 0.5 million people back into the Basic Rate (20%) on their top slice of income.
Stamp Duty Land Tax on commercial property will no longer be a ‘slab tax’ bringing its structure into line with last year’s changes to residential property. These changes take effect from midnight on 16 March. The new rates will be 0 up to £150,000; 2% on the next £100,000 and 5% above £250,000. Changes were also made to SDLT on the Net Present Value of leases – could be relevant to longer term farm business tenancies. For most purchasers this should mean smaller SDLT bills; 9% are expected to have to pay more. We will need to do the sums on some typical farm transactions.
The ‘Devolution Revolution’ continues with the announcement of an East Anglia Combined Authority and another combined authority for the West of England. As well as these two there will be a Thames Estuary Growth Commission and the devolution of some criminal justice powers to Greater Manchester. Might some of this sound like Regional Development Agencies by another name?
Other bit and bobs: Sugar Tax in two years. Pop manufacturers up in arms but will probably get around it by reducing sugar content or using substitutes. Carbon Reduction Commitment abolished. Climate Change Levy increased from 2019. Oil Supplementary Levy and Petroleum Revenue Tax reductions (one in the eye for Scottish devolutionists) – doubtful if these will benefit consumers but at least fuel duty remains frozen despite fears to the contrary. Longer school days on playing fields funded by the sugar tax and bad news if you work for a local education authority as they will no longer have a role in education. Whisky, beer and cider frozen; wine up.
A lot of this looks like good news for property and the rural economy: CGT, business rates, SDLT, business taxation, National Insurance, fuel costs, new savings measures, Corporation Tax for those who trade this way, useful reliefs for start-up and part time businesses. But do we have the skills to support the infrastructure proposals? How will the increasing emphasis on regionalisation/devolution play out? Relief at no shake-up for Agricultural or Business Property Relief.
And look out for some other clever ways the government is after your money which they can legitimately claim is not taxation at all. For example current proposals from the Ministry of Justice suggest that a grant of probate on an estate worth £2 million or more will increase to £20,000 from the few hundred pounds payable now. Dealing with old age and death is starting to look expensive. The cost to register a Lasting Power of Attorney with the Office of the Public Guardian is £110 per application. Allowing for both a health and a financial LPA for a husband and wife that’s a total of £440 to register something which the attorneys may never need to use!