Sweet measures from Chancellor in the Sugar Tax Budget

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The Chancellor of the Exchequer may have grabbed headlines by declaring war on sugar in his Spring Budget – but there were also several sweeteners for businesses and individuals alike.

A cut in corporation tax and a rise in the threshold for small business tax relief may leave small businesses salivating, while a new “lifetime ISA” with 20% returns will leave a nice taste in the mouth of individuals under 40.

Here are some of the key points from George Osborne’s speech – and the views of Blake Morgan’s specialists.

Education

Measures announced today by the chancellor in this year's budget include the plan for all maintained schools in England to convert to academy status by 2020 or be committed to converting by 2022.

Expert lawyer, Elizabeth Davis at Blake Morgan comments on these plans:

" The government's announcement that all maintained schools should convert to academy status has been expected for some time and confirms the determination of the present regime to free the state schooling from local authority control. Schools that are not already academies will need to understand the process of conversion and how the governance of their school will change under the new regime. 

"Existing academy trust companies, be they single academies or multi academy structures are likely to see the announcement as an opportunity to build and develop their educational output.  The opportunities that arise may require some restructuring and understanding the options and possibilities that are open to them will be key."

Blake Morgan offers a competitive academy conversion service based on a core fixed fee offering and supported by of comprehensive explanatory guidance and advice. Clickhere for more details.  

We also offer a post conversion fixed fee legal service to support academies after they have converted.  

For more information on academy conversions, please click here.

Business

The headline rate of corporation tax, currently 20%, will fall to 17% by 2020. Small firms get a boost as the annual threshold for small business tax relief is raised from £6,000 to a potential maximum of £15,000.

Tim Forer, a partner in Blake Morgan’s employment team, says: “There was quite a lot in this budget for small businesses, which will be welcomed – let’s not forget that they make up the bulk of the regional economy and that is where the growth tends to come from. The cut in corporation tax and the raising of the tax relief threshold will be advantageous to those businesses – and therefore to the economy in general.”

Pensions and savings

The annual ISA limit is to rise from £15,000 to £20,000. Perhaps more surprising was the introduction of a new “lifetime ISA” available for anyone who is under 40 in April next year.

The government will pay in £1 for every £4 saved, up to a maximum of £1,000 a year, until the holder of the ISA is 50.

Elysa Jacobs, a private client solicitor in Blake Morgan’s London office, says: “George Osborne's newly announced Budget was full of optimism and an overarching commitment to "put the next generation first". This was particularly evidenced by the introduction of a new Lifetime ISA, aimed at the under-40s but there is a catch!  

“From April 2017, this flexible savings option will allow individuals who are between the ages of 18 - 40 to open a Lifetime ISA and save up to £4,000 per annum tax free until the age of 50.

“And what's the "bonus"? For every £4 saved, the government will contribute £1 (up to maximum of £1,000) which equates to a 25% increase – far better than the low interest rates widely available elsewhere. The fund can be accessed at any time, but if money is withdrawn, the bonus (and any interest or growth on this) is forfeited and a 5% charge will be incurred. If the money is redeposited, the bonus is reinstated.

“And what's the catch? The Lifetime ISA bonus is only secured if you use Lifetime ISA as a deposit on a first home (worth up to £450,000) or on retirement. The details of withdrawal for other purposes are still being ironed out and we expect more information to be released soon.  

“Other significant changes helping to keep your hard earned pennies in your pocket include an increase in the ISA allowance from £15,000 to £20,000 per year from this April. There is also an increase in the personal allowance to £11,500 from April 2017.

Tax

There was good news for higher earners, with the tax threshold for those who pay 40% rising from £42,385 to £45,000 in April 2017.

The tax-free personal allowance will rise to £11,500, also from next April, and there will be a small 0.5 rise in insurance premium tax.

Perhaps most significant was a cut in Capital Gains Tax from 28% to 20% - slashed from 18% to 10% for basic-rate taxpayers.

Stamp Duty Land Tax

From midnight tonight, purchasers of non-residential property will be subject to a revised structure of Stamp Duty Land Tax.

In line with the changes made to Stamp Duty Land Tax on residential properties, the new commercial property tax rates are to work on the 'slice' not the 'slab' system. So instead of SDLT being charged at a single percentage of the price paid for the property depending on the price, it will now be charged at different rates on the portion of the purchase price falling within each rate band:

  • The first £0 to £150,000 will pay no SDLT
  • 2% will be charged on the next £100,000 and
  • 5% top rate is due for the part of the price above £250,000.
  • Also there is new 2% rate for high-value leases to the extent that the "net present value" of rents is above £5m, in place of the present 1%.

John Shallcross, Blake Morgan real estate lawyer, said: "Although this is billed as a measure to help small businesses, there is no doubt that this is a revenue-raising measure expected to raise about £380m in the coming tax year. But it does reflect the change made to Stamp Duty Land Tax in residential property which was deemed a success and slice rates seem more logical than slab rates.

"Whilst there are many more small businesses which will benefit from the new tax system, those buying more valuable properties will face the higher rate. We are seeing a number of clients now trying to get their current transactions exchanged before midnight so that they don't have to pay the new top 5% rate.

"It is likely to make commercial property a less attractive proposition for investors. Added to the time it takes to sell a property, these higher charges will be a disincentive for investors like pension funds and insurance companies, increasing transaction costs. However, this is unlikely to have a significant impact on the commercial property market in the long term as it seems to be less susceptible to factors such as these than the residential market."

Public sector

George Osborne made much of his commitment to “balance the books” and return a surplus to the public purse by the end of this Parliament.

Simon McCann, a partner in Blake Morgan’s commercial team, believes this could mean that a new method of funding public sector projects such as roads, schools, hospitals and housing schemes could be widely adopted.

He says: “One funding option that has become available again is the Non-Profit Distributing model (NPD), an alternative to PFI in which surplus profits can be reinvested in the public sector rather than going into private hands.

“A recent decision by the Office of National Statistics confirmed that projects funded through NPDs can be considered to be off balance sheet, if properly structured. There had previously been some uncertainty about this, which had effectively put NPDS on hold until the issue was resolved.

“The decision means the public sector now has the green light to use NPDs as a funding model. This may be the key to delivering major schemes while working within the Chancellor's commitment to balance the books."

Employment

In the latest budget on 16 March, Chancellor George Osborne put forward his budget for "working people" which "puts the next generation first". From an employment and pensions perspective there weren't too many surprises or big announcements.

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