Spring in the Chancellor's step
Francesca Lagerberg, Head of Tax at business and financial adviser Grant Thornton UK LLP, reacts to today's Budget announcement:
"For a Budget expected to focus solely on growth, assisting corporates operating in the UK, it ended up being just as much about money in people's pockets. With the personal tax allowance increases being accelerated to go up over £1,000 to £9,205 from April 2013 and a falling away at the same time of the top rate of income tax from 50p to 45p, the major talking point is how much better off taxpayers' will feel.
"With something of a Budget 'give away' flavour to the Chancellor's speech, Spring seemed to be coming early. The question remains how will falling income tax rates and rising exemptions be paid for? The answer was placed squarely on the shoulders of further anti-avoidance measures, with the long-awaited stamp duty land tax (SDLT) loophole clampdown on properties owned in corporate wrappers, increased SDLT on larger homes (£2m plus) and a general anti-avoidance rule being consulted on for implementation in a year's time. There remains a certain woolliness around the figures that such measures may raise and the Chancellor will be under strong pressure both in the UK and from such barometers at the credit rating agencies – to show he will be able to balance the books.
"As part of the Spring fever there was a tempting carrot for larger businesses with the promise of a falling mainstream rate of corporate tax rate to 22% in April 2014 and a more immediate fall to 24% this April. This ties in with the Chancellor's desire to make the UK one of the lowest corporate tax jurisdictions."
Top Budget 2012 Changes:
1. Personal Allowances and headline tax rates
"Osborne managed to placate his Liberal Democrat colleagues by making another step towards the holy grail of a £10,000 personal allowance by confirming it will rise to £9,205 in April 2013. The good news here is that all taxpayers benefit to some extent and those on lower incomes to the tune of a few hundred pounds each year. Higher tax payers do not receive such a large benefit as the thresholds when higher rates begin to apply are slightly squeezed meaning that most higher rate taxpayers will get one quarter of the benefit a typical basic rate taxpayer will receive.
"However, there will be some leveling out of age related allowances that will hit those over 65. This is one of the prices being paid for simplification."
2. Pension Tax Relief
"The Chancellor decided against restricting higher rate pension tax relief as once again the popular pre-Budget rumour becomes the dog that didn't bark. Had it gone ahead, it would have felt like a tax rise for those on higher earnings and reduced the effectiveness of a relief aimed at encouraging savings.
3. Tax Avoidance Clampdown
"It was no surprise to see a raft of anti-avoidance measures being introduced to help raise the revenue needed to cut mainstream taxes, particularly following the Barclays bank story earlier in the month.
"Along with a pledge to tighten tax avoidance in the corporate world, the Chancellor announced that he will finally close stamp duty land tax (SDLT) avoidance loopholes that have benefited those who can use corporate structures to shield themselves from UK taxes. This has been long expected although the detail of the legislation will be picked over to see if it has hit its target. However, the Chancellor made it clear that if avoidance continues he will react retrospectively.
"There will be a 15% tax from today on those who continue to use 'corporate envelopes' to reduce UK SDLT and capital gains tax implications.
"The Chancellor also surprised no one by accepting that the UK needs a General Anti Avoidance Rule (GAAR) – an all encompassing piece of legislation meant to catch and deter more aggressive tax planning. Keeping to its promise to consult further, the GAAR will now be subject to a broad consultation with a view to implementation from April 2013. It needs this input. Hard evidence from other jurisdictions that have gone the GAAR route eg Canada and Australia, shows how hard it is to formulate a rule that both clarifies what it does and doesn't cover and is practical to implement. Business will be looking closely to ensure that commercial transactions do not get bogged down in cumbersome rules and lengthy clearance procedures. Equally they will want certainty that what they do is not inadvertently caught by a GAAR and become a barrier to business in the UK."
4. Statutory Residency Test and non-domiciles
"We already know that the statutory test of residence will be deferred until 2013 but today we heard a commitment to press ahead with establishing the test. Equally we got some further details about how the Chancellor plans to encourage wealthy non-domiciled individuals to invest in UK businesses.
"This is positive as the measures announced today are likely to make the UK a more attractive place to invest, therefore creating a potential boost for UK companies and as a result the economy."
5. Higher Rate Tax Payers – 50% tax goes down
"Bowing to the inevitable lesson of history that high tax rates don't always lead to expected revenues, the Chancellor is cutting back the temporary 50p tax rate with a reduction to 45p from April 2013. This will be welcomed by business which has sought to attract top executives in the face of an unattractive tax regime."
"It is also likely to drive behaviour for the next 12 months as those with the wherewithal to defer dividends and bonuses will do so until the tax rates fall.
"A mini-tycoon tax is also introduced to cap income tax reliefs once over £50,000 of relief has been achieved. The cap will be set at 25% of income."
"The Chancellor also ruled out the creation of two new top-level council tax bands or a ‘mansion tax’ as championed by the Liberal Democrats. Conservative Ministers opposed the measure as it breaches the Tory manifesto commitment not to revalue homes for council tax."
For further information, please contact:
Nicola Daley, PR Manager on +44 (0)20 7728 2244 or +44 (0)7900 136213 or Nicola.Daley@uk.gt.com
Notes to editors:
Grant Thornton UK LLP is a leading business and financial adviser with offices in 28 locations nationwide. We are a member firm within Grant Thornton International Ltd, one of the world's leading international organisations of independently owned and managed accounting and consulting firms. Clients of member and correspondent firms can access the knowledge and experience of 2,600 partners and 30,000 employees in over 100 countries and consistently receive a distinctive, high quality and personalised service wherever they choose to do business.
Copyright © 2012 Grant Thornton UK LLP. All rights reserved.