Simon Littlejohns, Partner and Head of Tax at Birmingham chartered accountants Friend Partnership, compares the results of the Summer Budget to his original predictions.
In my blog on 12th June I gave my ‘predictions’ for the Summer Budget – so how did I do?
I will give myself a B+ as I mentioned the following:
- Inheritance tax and relief for family homes valued at up to £1 million;
- Income tax and the personal allowance and rate bands;
- A restriction on tax relief for pension contributions for those earning over £150,000;
- The retention of a material Annual Investment Allowance;
- Further anti-avoidance moves; and
- Changes with regard to the taxation of ‘non-doms’.
It was heartening to learn that Mr Osborne has not tinkered with Capital Gains Tax.
I missed the following:
- A reduction in the rate of corporation tax;
- The changes to tax relief on mortgage interest for BTL landlords; and
- The changes to the tax treatment of dividends.
I would just like to comment on three of the Budget announcements at this stage. I will have further comment as and when any ‘nasties’ become apparent or there is further guidance on the implications of the changes which have been announced:
- The change to the tax treatment of dividends was the biggest surprise. For a lot of taxpayers this will save them tax. However, for a lot of company owners there will now be a real dilemma where they have traditionally used dividends to top up ‘modest’ salaries. In most such cases the tax cost will increase. This may encourage such businesses to look more closely at dividend planning and the company’s shareholding structure to ensure that it is as tax efficient as it can be.
- The retention of the AIA at £200,000 is welcome although it will still create calculation anomalies with the reduction from the current £500,000. It is not clear why the £500,000 was not retained to save the complexity that will be created for those businesses with a healthy capital expenditure programme.
- BTL landlords will no doubt now be looking at their future cashflows in light of the announcement of the reduction of tax relief to basic rate on mortgage interest. The change will be phased in over four years starting in April 2017. Thus in 2020/21 the tax relief will be at basic rate only. I am not convinced that this will have a material effect on the BTL market as I expect that most landlords will pass the increased cost on to their tenants. Landlords may even start to increase rents now so that the changes are less material for their existing tenants over the coming years.
All in all one of the more interesting Budgets but it was a shame that there was no serious attempt to reduce the complexities within the UK tax code which creates unwelcome uncertainty for many and opportunities for the less scrupulous to avoid their responsibilities.
The reaction to the measures over the coming months will be interesting and there will be more from me in due course.