Budget 2014 Resources
The Budget was delivered on Wednesday 19 March 2014.
There are documents published by HM Treasury which are of a policy nature.
But the important page for tax practitioners is the HMRC collection here, where you will find links to the draft legislation and technical notes. Another important page is the Explanatory Notes and Guidance page which also contains technical notes.
There is also an overview of what the tax legislation will look like when published, together with future tax rates all in one document called “OOTLAR”, which you can download as a pdf file.
The following are some key points that came out of the Budget. This page will be updated as and when I have the time. (Changes to the tax rates will appear on the Tax Rates page). Also note that some of the measures simply confirm the earlier announcements made in last year’s Autumn Statement.
- Putting a stop to certain avoidance schemes relating to transfers of corporate profits; and
- Amending a slight quirk in the business asset rollover rules which appear to permit capital gains on an asset such as the business premises to be reinvested into an intangible such as IP or goodwill – this was not intended and is now being put right
This is perhaps one of the most radical announcements in this year’s Budget – a whole series of measures are to be introduced to make pensions more flexible. The most important point of all, is that people will no longer be obliged to purchase an annuity with their pension pot.
The key points are:
- As before, 25% of the pension can be taken out as a tax free lump sum, and the remainder can also be withdrawn – but instead of a punitive 55% tax charge, investors will be taxed at their marginal rate;
- An increase in the amount that can be taken out as a lump sum (from £18,000 to £30,000);
- The number of “small” pension pots that can be taken out in a lump sum is to be increased from two to three – and the size of a “small” pension pot to be increased from £2,000 to £10,000.
Steve Carlson of Ideal Futures has an interesting article on these changes.
Currently there are two types of ISA – a cash ISA and a stocks and shares ISA – these will be merged and the ISA limit will be £15,000 from 1 April 2014 (£4,000 for junior ISAs).
10% tax rate for savers will be abolished, and replaced with a £5,000 nil rate band
This measure abolishes the SDRT for managers when investors sell their units back to the fund. This is simply a confirmation of what was announced in last year’s Budget.
Good news for investors looking for high growth investments in small companies – this scheme is now permanent. When it was first introduced, it was designed to last until 2017 – so someone must be doing something right.
The CGT reinvestment relief will also be made permanent – this is a deferral relief obtained on selling an asset and reinvesting the proceeds into SEIS shares. The gain is brought into the tax net when the shares are eventually sold. However, only 50% of the gain can be relieved in this way – a shame that it isn’t the entire gain as is the case with the Enterprise Investment Scheme. You can find further commentary on the different types of venture capital scheme at this page – which will now need to be updated!
Social Investment Tax Relief
There will be a new scheme aimed at individuals investing in social enterprises and other good causes. Like the EIS Scheme there will be an income tax relief at 30%, together with a capital gains relief. This is expected to come into force on 6 April 2014 – the draft guidance can be found here.
This tax charge was introduced last year as a measure aimed at buying and holding residential property within a corporate wrapper. This is a three-pronged attack where the owner is a non-natural person such as a company, a partnership with a corporate member or a collective investment scheme:
- SDLT is charged at 15% on acquisition of the property;
- An annual tax which starts at £15,000 (see here for the pre-Budget 2014 rates); and
- CGT charged at 28% on any gain on disposal.
The threshold is currently at £2m for the value of the property.
The new rules will lower the threshold to £500,000 – this will be done gradually:
- From 6 April 2015, the threshold will be £1m – so that SDLT at 15% and CGT at 28% will apply on those properties between £1m and £2m, which had hitherto escaped the AETD regime;
- From 6 April 2016 the threshold will be reduced to £500,000, bringing more properties into the regime.
- For CGT, only the gain accruing after 6 April 2015 or 2016 is charged at the 28% rate. Gains accruing before that date will be taxed as they would have been had the rules not changed.
The annual charge will also be phased in in this way.
- From 1 April 2015 there will be a new starting band of £1m to £2m subject to an annual charge of £7,000;
- From 1 April 2016, properties within the £500,000 to £1m range will be brought within the regime, with an annual charge of £3,500.
No doubt this will raise further revenue for the Chancellor. HMRC has an updated page for the ATED scheme, where you can also find the various compliance rules.
Capital Allowances – From April 2014, the Annual Investment Allowance will be increased from the current level of £250,000 to £500,000. This applies to both corporate and individuals whether trading as a sole trader, or in partnership.
The increase is temporary – as was the previous £250,000 figure. This will apply until 31 December 2015 after which the allowance will drop back down to £25,000.
This is a welcome increase for businesses investing in plant and machinery. In the absence of the annual investment allowance, tax relief is normally given at rates of 8% or 18% on a reduced balance – but for capital expenditure falling within the annual limit, the entire amount can be written off in a single year. Businesses should consider accelerating any investment plans to take into account the fact that the increase is temporary.
Something to delight those in the fracking business. This is a new measure that will ensure that the costs of a successful planning permission will be treated as expenditure on mineral exploration and access rather than as expenditure on acquiring a mineral asset.
Why is this so important? Because acquiring a mineral asset gives rise to allowances at the measly 10% rate, whereas mineral exploration costs benefit from the 25% rate.
The ECA scheme allows companies investing in plant and machinery in a designated Enterprise Zone to obtain a 100% write off, rather than having to make do with the reduced 8%/18% rates. The scheme was due to expire on 31 March 2017 – this will now be extended to 31 March 2020.
Two measures aimed at tech companies:
This relates to the R&D tax credit that applies to SMEs rather than large companies. Tax relief is given by way of a superdeduction against profits for R&D expenditure of a revenue nature – currently this amounts to 225% of the R&D spend.
However, the company has the option to claim a certain amount of cash instead of claiming the deduction – particularly useful for those companies that are still in the loss making stage. The current rate is 11% of the “surrenderable loss” – this will be increased to 14.5% from 1 April 2014.
These rules operate to restrict the use of tax losses when there is a change in ownership or control of a company. The restriction is not automatic, as there is a tax avoidance test that needs to be satisfied. However, HMRC considers that the rules have an unintended impact when the losses include an element of R&D.
The rules catch situations where a company does preliminary R&D work but doesn’t actually start trading, before it is sold on to another company. Before the loss buying rules were introduced, the corporate buyer would have been able to use the R&D allowance – this position has now been restored.
(Note that this is directed at the R&D allowance which is for capital investment, and not the R&D tax credit which concerns revenue expenditure.)
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