Tax Budget UK 2016

George Osborne has today outlined his budget for 2016. We would like to update clients on today’s relevant announcements and changes in the UK tax system.

Corporation tax for businesses will be reduced from 20% to 19% in 2017 (as previously announced) and further reducted to 17% in 2020. Pensioner Bonds for 65+t The GDP growth forecast for 2016 has been reviewed to 2% (revised down from 2.4% in November’s Autumn Statement). The GDP growth forecast for 2017 is 2.2% and 2.1% for 2018/2019 (revised down from 2.4% and 2.5% four months ago). This is mainly due to the “materially weaker” global economy.

Despite this negative review the UK is expected to be the fastest growing western economy in the following years; the Government targets a budget surplus and a million additional jobs to be created by 2020. The inflation numbers are still well below the 2% target as the forecast is 0.7% for 2016 and 1.6% for 2017.The Government is consistently implementing its plan of deficit reduction even though the deficit over GDP figures have been revised up in each of the next five years to 82.6% in 2016-17 and 81.3%, 79.9%, 77.2%, 74.7% in subsequent years.

Cuts on Capital Gains Tax
The chancellor has announced a cut in capital gains tax from 28% to 20% for higher rate tax payers and from 18% to 10% for lower rate tax payer from this April.

Pensioner Bonds for 65+
A significant change which affects the sale of all assets except residential property and carried interest. Capital Gains Tax applies to all residential properties except the main home. This measure keeps landlords ‘under pressure’ after the Government introduced a hike to stamp duty for landlords in the Autumn Statement 2015.

Stamp Duty on Commercial Properties
The Chancellor has decided to impose SDLT on the purchase of commercial property from 16th March 2016; please see the tables as follows:

In addition, where commercial properties are subject to a lease the net present value of rental income will also be subject to SDLT at the following rates:

Property Value (£000)Stamp Duty (%)

In addition, where commercial properties are subject to a lease the net present value of rental income will also be subject to SDLT at the following rates:

Rental Income (£)Stamp Duty (%)
0 - 150,0000
150,000 - 5M1
5 Million +2

The Chancellor is effectively endeavouring to close all available avenues to either schemes of distributing loans or debts through Employee Benefit Trusts or other tax avoidance vehicles that have and are still continued to be used, to reduce or eliminate income tax and national insurance on what is described as disguised remuneration.

Pensioner Bonds for 65+
Although legislation was introduced for such schemes to become ineffective from 9th December 2011, many EBT’S which were set up before this date have still not reached agreement with HMRC to agree and settle outstanding tax and insurance liabilities. In addition, any new schemes introduced after this date will also be caught with HMRC amending current tax legislation as set out in Part 7A ITEPA 2003. However, the Government has announced that all loans or debts from disguised remuneration will be taxed as earnings if they have not been fully repaid by 5th April 2019. It is estimated that £2.5 billion will be raised by 2020/21.

Income Tax – Royalty Withholding Tax
The UK Government has announced changes to the way companies can use losses, a reduction in the rate of corporation tax and a new withholding tax on royalties. The measure will provide obligations to deduct income tax at source from royalties paid to non-resident persons where:

  • arrangements have been entered into which exploit the UK’s double taxation agreements (DTAs) in order to ensure that little or no tax is paid on royalties either in the UK or anywhere in the world;
  • the category of royalty is not currently one of those in respect of which there is an obligation to deduct tax under UK law;
  • royalties which do not have otherwise have a source in the UK are connected with the business that a non-UK resident person carries on in the UK through a permanent establishment in the UK.While this new legislation is seemingly for multinational groups it will also catch those UK companies who utilise UK DTA’s in the payment of royalties to non-UK resident persons – it is, of course, a point of discussion as to whether such arrangements have been entered into to exploit any particular Double Tax Agreement.

Wilton will be looking in detail further releases of Budget information over the coming days especially relating to possible changes to UK legislation on UK property development owned in offshore jurisdictions such as Isle of Man and Jersey. Our team is here to support and advise you. Please feel free to contact your usual consultant or one of our specialists.