UK Chancellor Rishi Sunak doubled down on his commitment to do “whatever it takes” to protect lives and livelihoods in the face of the unprecedented challenges raised by the coronavirus pandemic.
In his Spring 2021 Budget statement, he outlined a three-part plan to support people and businesses, fix public finances and build the future economy. He said the government’s overall Covid-19 support package will be £352 billion over 2021 and 2022, giving a total of £407 billion when including last year’s measures.
Citing forecasts from the Office for Budgetary Responsibility (OBR), Sunak said the economy would grow by 7.3% in 2022, then 1.7%, 1.6% and 1.7% in the following years. The economy contracted by 10% last year, it’s worst performance in 300 years.
Given the OBR’s estimate that the UK’s national debt will peak at 97.1% of GDP in 2023/24, it was perhaps surprising to see that many of the predicted tax rises did not feature in the Budget; the exception is corporation tax. The rate, paid on company profits, is to rise to 25% from 19%, starting in 2023.
Sunak said it was “fair and necessary” for business to contribute to the economic recovery and maintained that even with the rise to 25% “the UK will still have the lowest corporation tax rate in the G7” group of leading nations.
But he also unveiled a ‘small profits rate’, which will maintain the 19% rate for firms with profits of £50,000 or less, meaning that about 70% of companies – 1.4 million businesses – will be “completely unaffected” by the tax rise. And there will be a taper above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate – about 10% of firms.
There will be a consequential increase in the main rate of ‘diverted profits tax’ from 25% to 31%, This tax was introduced to address arrangements that are designed to erode the UK tax base through avoiding a presence in the UK or exploiting cross-border mismatches. The increase will maintain the current differential of 6% between the rates of diverted profits tax and corporation tax when the latter rises.
Prior to the rate increase, the Chancellor confirmed that between 1 April 2021 and 31 March 2023, businesses will be able to make ‘super deductions’ by way of enhanced first-year capital allowances for expenditure on plant and machinery.
Until 31 March 2021, the capital allowance rate is 18% for assets qualifying for the ‘main rate’, which will be increased to a whopping 130% first-year allowance. The capital allowance rate for other assets qualifying for the ‘special rate’ will rise from 6% to a 50% first-year allowance.
Sunak also announced that, for a two-year period to April 2022, it will be possible to relieve trading losses against profits for up to three years. The relief will apply to trading losses of up to £2 million and should allow a number of businesses to improve their cash flow by claiming tax refunds in respect of earlier years. This enhanced relief will apply to companies, partners and self-employed individuals.
Personal Rates and Allowances
The Budget provided largely good news for personal taxpayers as, contrary to most expectations, there will be no changes to the rates of income tax, national insurance or VAT for the 2021/22 tax year. But while technically the government did not raise tax rates, its decision to freeze thresholds until 2026 means that many more people will start paying higher taxes.
The tax-free personal allowance will rise by £70 from £12,500 to £12,570 in April 2021, and it will then remain there until April 2026. The higher-rate tax threshold, at which point the amount charged rises from 20% to 40%, will rise by £270 from £50,000 to £50,270 from April 2021, where it will remain until April 2026. The additional-rate tax threshold, at which point the amount charged rises from 40% to 45%, is also to remain at £150,000 until April 2026.
Three more key thresholds will also be frozen until 2026:
- The pensions lifetime allowance – the maximum amount you can pay into your pension over your lifetime before tax is due – will remain at £1,073,100 until 2026. This means the amount you can save tax-free will be smaller in real terms. The separate annual tax-free pensions allowance of £40,000 is unchanged.
- The inheritance tax (IHT) thresholds will remain at existing levels until April 2026. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million. This means qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without IHT liability.
- The capital gains tax (CGT) allowance will remain at £12,300/year for individuals until 2026, so gains are more likely to become taxable in future. Last year Sunak commissioned a review into CGT by the government’s Office for Tax Simplification and it had been predicted that he would raise the 20% CGT rate to bring it more in line with income tax rates. This change did not transpire.
There is nothing in the Budget that prevents current IHT mitigation. It is still possible to make large tax free gifts, transfer assets into trust and opt to pay the lower rate of CGT on any gains rather than suffer the death rate of 40% IHT.
Stamp Duty Land Tax (SDLT)
In response to reduced activity in the housing market during the pandemic, Sunak has committed to extend the temporary Stamp Duty Land Tax (SDLT) relief, which he introduced in July last year. The original allowance, which was due to end on 31 March this year, saw the threshold for SDLT increase from £125,000 to £500,000, with the reductions being passed on to those falling within the upper rate bands as well. These reduced rates of SDLT will now run to 30 June 2021. There will be some tapering when rates revert to their original levels, as house purchases completing between 1 July and 30 September 2021 will see the threshold set at £250,000.
But it is not good news for all house purchasers. The government’s attempts to “aid UK residents” sees the introduction of a further 2% surcharge for non-residents purchasing residential property from 1 April 2021. This 2% surcharge will apply in addition to the current 3% surcharge that is imposed when an individual acquires a UK property if they already own a residential property anywhere in the world. With a basic 12% SDLT rate for a property purchase of £1.5 million or more, this could increase SDLT to as much as 17% for a non-resident purchaser buying a second home.
Tax Avoidance & Tax Evasion
The government announced, as usual, that it would be “cracking down on tax avoidance and evasion” – conflating the two, very different, terms – but the actual measures announced were relatively modest. There is to be some harmonisation of interest and penalty charges, a very technical point regarding digital sales suppression (which is, of course, illegal), information powers to tax those in the gig economy’ and, most importantly, a consultation on implementation of a new Mandatory Disclosure Regime.
In December 2020, the government published regulations that significantly reduced the scope of the EU Mandatory Disclosure Regime (DAC6) in the UK. In its place, it proposes to introduce a regime that aligns with the OECD’s Mandatory Disclosure Rules, which facilitate global exchange of information on certain cross-border tax arrangements. The government is to launch a consultation later this year on draft regulations.
Sunak also announced a package of new measures to target promoters and enablers of tax avoidance schemes. These measures are expected to allow HMRC to issue and publish penalties for those who enable schemes sooner, to allow HMRC to stop promoters from marketing schemes earlier, and to amend the general anti-abuse rule (GAAR) so that it can be applied more directly and clearly to partnerships that enter into abusive arrangements at the level of the partnership.
Another measure introduces a new Financial Institution Notice (FIN) that will be used to require financial institutions to provide information to HMRC when requested about a specific taxpayer, without the need for approval from the independent tribunal that considers tax matters. It will also allow information and documents to be obtained for the purpose of collecting a tax debt.
Immigration Visa Reform
Finally, Sunak announced that the government is modernising the immigration system to help the UK attract and retain the most highly skilled, globally mobile talent – particularly in academia, science, research and technology – from around the world. To do this, the government will:
- Introduce, by March 2022, an elite points-based visa. Within this visa there will be a ‘scale-up’ stream, enabling those with a job offer from a recognised UK scale-up to qualify for a fast-track visa;
- Reform the Global Talent visa, including to allow holders of international prizes and winners of scholarships and programmes for early promise to qualify automatically;
- Review the Innovator visa to make it easier for those with the skills and experience to found an innovative business to obtain a visa;
- Launch a new Global Business Mobility visa by spring 2022 for overseas businesses to establish a presence or transfer staff to the UK;
- Provide practical support to small firms that are using the visa system for the first time;
- Modernise the immigration sponsorship system to make it easier to use. The government will publish a delivery roadmap in the summer;
- Establish a global outreach strategy by expanding the Global Entrepreneur Programme, marketing the UK’s visa offering and explore building an overseas talent network.
It will be interesting to see how these various reforms extend to the immigration of skilled global workers more widely and the opportunities created. We await full details of the schemes, which are scheduled to be published in July. The government aims to implement and launch a number of the new schemes from March 2022.