Ray of hope
The chancellor delivered a budget that will temporarily distract from the trials of today by encouraging us to look to the sunshine rays of tomorrow, says Lucy Brennan
In his 2016 Budget, the phrase which George Osborne turned to more than any other was 'the next generation'. In fact, the only three word phrase used more often in his speech was, 'Mr Deputy Speaker'.
This was, therefore, a budget that aimed to dispel the gathering storm clouds around the immediate future and direct the nation's gaze to a more pleasant tomorrow.
Of course, the chancellor could not simply dismiss the concerns that many savers, businesses and commentators have about the current state of the economy; particularly those macro, global factors which may further squeeze the public purse and undo many of the fiscal results that the (largely) Conservative campaign of 'austerity' has looked to achieve.
With the 'we're all in this together' mantra still looming over the government, the issue of tax avoidance and evasion has been a frequent target of reformist policies from the chancellor, and was front and centre of March's budget.
Tackling tax avoidance
Of course, much of the groundwork on this had been done in previous policy announcements, with measures such as the disclosure of tax avoidance schemes (DOTAS) regime and accelerated payment notices (APNs) helping contribute over £2bn to the treasury. Tax evasion and avoidance practices are largely a thing of the past; not worth the risks entailed, with many in fact finding themselves worse off overall.
Budget 2016 reaffirmed this stance and further tightened rules for multinationals and serial private evaders and, all in all, the clamp downs will, Mr Osborne announced, raise £12bn over the course of the Parliament. These measures, therefore, while not going so far as to plug the economic black hole completely, did give the chancellor some wriggle room to announce some relatively unexpected giveaways.
A leg up to entrepreneurs and investors
First, as George Osborne tackled the taxation of big business with one hand, the other proffered a series of gifts to UK entrepreneurs and investors.
On the commercial front, business rates received a long called-for package of reforms, and there were cuts to stamp duty land tax (SDLT) on lower valued commercial property. The new residential 'slice' SDLT system will now apply to commercial property, with the budget announcing a zero rate band on purchases up to £150,000; a two per cent rate on the next £100,000; and a five per cent top rate above £250,000. This top band, though, is a significant tax increase on the highest value transactions and the industry response has been understandably mixed, with some arguing the higher top rate will stymie regional growth and others believing the tiered structure will benefit private investors.
Capital gains tax (CGT) also received a significant cut, and the headline rate cut from 28 per cent to 20 per cent - and from 18 per cent to 10 per cent for lower earners - will have come as a shock to many. No doubt those individuals who have recently sold assets and paid at 28 per cent will have found the news galling, but it will be a welcome boost to those anticipating imminent sales.
As has been the case with previous budgets, the good news had a sting in the tail for buy-to-let landlords who the chancellor ensured would not benefit from tax reliefs, meaning the higher rate of CGT remains in place on residential property, not qualifying for main residence relief.
For entrepreneurs meanwhile, Mr Osborne went further and extended the 10 per cent CGT entrepreneurs' relief on long term gains to those who have invested in non-listed small businesses, but don't work there. Further guidance is expected in due course - particularly regarding the lifetime limit, the amount of share capital needed to qualify, and the relief's interaction with enterprise investment schemes - but the strict conditions being met, this new investors' relief will mean substantial tax cuts for those individuals investing in the future of UK plc.
Similarly, the chancellor also rolled out support for those micro-entrepreneurs who have been capitalising on the sharing economy and generating income from enterprises such as Airbnb. A new £1,000 allowance was introduced for income from property or trading, with those earning below that threshold not needing to declare from April 2017.
However, for those more reliant on their entrepreneurial income, budget 2016 also increased taxes for those who take loans from their companies - a rise from 25 per cent to 32.5 per cent - which, when coupled with looming changes to dividend taxation (introduced in the 2015 Summer Budget), paint a rather less rosy picture and will require entrepreneurs to carefully assess their investments to make best use of the various allowances now on offer.
This was, as we have seen, a budget squarely aimed at the future and the real winners were those private individuals starting out on the path to savings and investments.
A glimpse of sunlight ahead
For young individuals (those under the age of 40) looking to save for a property or retirement, the chancellor introduced the new and flexible, 'Lifetime ISA.' From April 2017, savers can contribute up to £4,000 per year and the treasury will top the amount up by £1 for every £4 saved. This will be added yearly and is in addition to any interest accrued. The sum can be withdrawn tax free at any time for use as a deposit on a first home, or after the saver's 60th birthday as, essentially, part of an alternative pension portfolio.
This will likely supersede 'Help to Buy' ISAs given the higher deposit limit. The downside is that any withdrawals prior to the age of 60 which aren't used on a first home will be subject to a 5 per cent charge and will miss out on the government bonus. While changes to the pensions taxation system were curtailed at the last moment before the budget, one might well wonder whether the Lifetime ISA is playing the role of a vanguard, softening the public up before the future removal of the more generous tax reliefs on pensions.
While many businesses will have benefited from the changes to SDLT, and first time buyers were given a boost with the Lifetime ISA, there were important measures announced in the budget for buyers of additional residential properties.
Mr Osborne confirmed the implementation of what has been termed the buy-to-let levy on SDLT but, importantly, added that this will apply to large investors - such as institutions - who had been hoping for exemption and support; the argument being that large investors fuel the development of the much-needed rental market. For individual investors, April 2016's implementation may make it more difficult to achieve high short-term yields and could see investors liquidate and/or take their capital into more tax-attractive markets.
The anticipated increase to the personal allowance in 2017 was also announced, though it was higher (at £11,500) than expected and is an important stepping stone towards 2020's £12,500 target. This will mean more take-home pay for many, while the chancellor removed thousands more from the 40 per cent income tax rate by raising the threshold to £45,000. We have often heard Osborne talk about a £50,000 threshold; this is another significant move towards that target.
Tax hikes across the board were to be expected given the forecasts and, with these economic storm clouds brewing, George Osborne had no recourse to the tried and tested 'fixing the roof while the sun is shining' metaphor. This was, then, a budget which the government hopes will provide a shot in the arm to UK enterprise and investors before the storm hits, keeping the eye of the saver firmly fixed on a sunnier future.
Lucy Brennan is a partner at Saffery Champness