- A surprise change found in the detail and not in the budget speech was the change to rules on intangible assets. The current regime on intangible assets allows for a corporation tax deduction for goodwill assets such as business reputation and customer relationships as they are amortised through the accounts. With immediate effect to new purchases the annual deduction on the amortisation will be removed.
- New corporation tax rates to be applied from April 2017 to reduce the new unified corporation tax rate down from 20% to 19% with a further 1% deduction in 2020. This was an unexpected decrease and further enhances the UK as one of the lowest corporation tax rates in the EEC.
- Corporation tax instalments is now a well- established regime for companies deemed large for tax purposes. Paying tax on a quarterly basis starting in the 7th month of the current accounting period and thereafter quarterly. From April 2017 for businesses with taxable profits over £20 million these quarterly payments will be brought forward with the first instalment due in the third month so that all the quarterly instalments have been paid during the accounting period to which it has been incurred.
- The annual investment allowance was due to be reduced from £500,000 from 1 January 2016 to £25,000 after a two year period. The reduction has been limited to £200,000 on qualifying items from 1 January 2016 which is a welcomed increased for investment expenditure required by businesses.
In addition to the announcements various consultations were announced which we can expect to see changes on in the future.
- New consultation on IR35 to improve effectiveness as still seen as a prime area of tax avoidance.
- Company distributions to be consulted on during the Autumn of 2015.
The biggest announcement as widely expected in relation to properties relates to inheritance tax on the family home. A new transferrable nil rate band is being introduced from April 2017. This will apply when a property is passed to direct descendants on death. The allowance will be up to £100,000 in 2017-18, increasing to £125,000 in 2018-19, £150,000 in 2019-20 and £175,000 in 2020-21. This is in addition to the current nil rate band which is set at £325,000. By 2020-21 this creates an effective £500,000 band for an individual and £1 million per couple which fulfils the Conservatives manifesto pledge. The extra relief will be tapered for estates with a net value of over £2 million.
To increase the home ownership in the UK a new ‘Help to Buy ISA’ is being introduced. This will provide with a maximum government bonus of £3,000 on £12,000 of savings from December 2015.
Rental properties have been speculated to be targeted both in this and previous budgets in the amount of allowable expenditure they are allowed, so it is no surprise when the new rules were announced as follows;
- Restriction on interest payments for rental properties available to landlords is being introduced from April 2017. The restriction is being phased in over a 4 year period starting in April 2017 to basic rate tax relief only.
- In addition the 10% wear and tear allowance on furnished rentals is being reformed. Previously a 10% deduction was allowed irrespective of the amount of expenditure incurred. This is being replaced by a new system which only allows actual costs incurred to be deducted.
On a more positive side of the rentals market, the rent a room relief is being increased from £4,250 to £7,500 from April 2016.
A now well established element of any budget is further legislation on tax evasion and avoidance. New rules this time include;
- HMRC new tax transparency rules of tax strategies to give HMRC new powers to tackle businesses who persistently engage in aggressive tax planning.
- HMRC new powers to gather information from online intermediaries to identify businesses not registered for tax.
- Further rules on Controlled Foreign Companies to restrict the use of their losses.