Budget positive for financial planners but a 'damp squib' from a capital tax view - reactions

30/10/2018 Ramla Soni

Chancellor Philip Hammond’s announcement in yesterday’s Budget (29/10/2018) to abolish stamp duty for all first time buyers of shared ownership properties valued up to £500,000 was a “pleasant surprise” according to Jeremy Raj, national head of residential property at Irwin Mitchell. 

“Additional funding for the housing infrastructure fund will need to be closely monitored as the supply site problems in the market are well documented and it is essential they are addressed in reality rather than just in theory,” he said.

Similarly Jennifer McNally, director at accounting practice, Blick Rothenberg said the extension of stamp duty relief is “good news for first time buyers.”

Caroline Le Jeune, partner at Blick Rothenberg added: “The sale of the family home is usually exempt from capital gains tax. However, reducing the period that continues to qualify for relief once the owner has moved out from 18 to nine months is extremely unhelpful when the property market is so slow. This has the potential to bring genuine sales of family homes at least partly within the scope of tax.”

On the topic of real estate measures announced by the Chancellor in the Budget, PwC’s UK real estate tax leader Robert Walker said incentivising the construction of commercial real estate can “only be a good thing”. 

“These projects are expensive, so a two percent relief for people looking to invest and build in the UK should encourage many businesses to think about ways in which they can construct new non-residential buildings - starting from today.”

With the increased amount of Annual Investment Allowance (AIA) to £1,000,000 from January 2019 for two years, Mr Walker said it questioned whether people will now defer any investment in plants and machinery for a few months until this measure comes into play in January 2019. 

“Longer term, this should encourage much more investment, but short term there may be a lag while businesses wait for January.” 

At the same time with the uncertainty of Brexit approaching John Annetts, partner & head of administration of estates, at law firm Howard Kennedy described it as “unsurprising” that yesterday’s budget had “proven to be a damp squib from a private wealth and capital taxes perspective.” 

“Real progress would come from a considered approach to reviewing more contentious areas like the residence nil rate band and Business Property Relief (BPR). In this climate however, it is right for the Chancellor to focus on the wider and more pressing matters facing the economy rather than seek to grab headlines by rushing through legislation that hasn’t been properly consulted upon,” Mr Annetts continued. 

“Recent Budgets have tried to tackle perceived tax avoidance amongst the self-employed, it’s probably only a matter of time before the self-employed and employee regimes are aligned for tax,” said Nimesh Shah, Partner at Blick Rothenberg. 

On the changes to the CGT Entrepreneurs Relief in the Chancellors Budget, Nick Pheasey, tax partner at KPMG UK said private equity backed businesses who often hold small shareholdings and currently expect to qualify for Entrepreneurs Relief  are most likely to be affected. 

“In effect this means smaller shareholders will be doubling the tax they pay on those shares overnight, defaulting back to a 20 percent rate.  

“While the addition of extending the minimum qualifying period for which an asset has to be held to qualify for relief from 12 to 24 months does not look unreasonable, the further changes for smaller shareholdings is likely to have a negative impact on the private equity community,” he said. 

 However, yesterday’s Budget was a “broadly positive” one for financial planners according to Vince Smith-Hughes, retirement expert at Prudential. 

“The announcement on IR35 could represent a tax increase for some contractors, necessitating advisers and accountants to review remuneration structures for the people affected. 

“The additional funding for the housing infrastructure fund could lead to a boost for mortgage advisers, which is to be welcomed. Confirmation of the raising of the personal allowance and the higher rate thresholds next year is also to be welcomed - hopefully enabling many of the 32 million people that were quoted to consider further saving for retirement and other life events,” he explained. 

The Budget also delivered some positive news for manufacturers, a vital sector of the UK economy, Richard Powell, partner at accountancy firm MHA MacIntyre Hudson said, but we want to see more “policies that focus on this sector in particular.”

Good news included the £1.6 billion to support the industrial strategy, increased incentives to invest and improvements in the apprenticeship scheme, he stated. 

“Increased investment in research & development (R&D) has been promised, but like many reliefs, the scheme remains far too scattergun in their approach as it’s open to any business, regardless of their importance to the UK economy. 

“We need to see evidence on how these new packages incentivise new investment, rather than support investment that would have been made regardless,” Mr Powell continued. 

 Additionally although a boost in public sector spending was announced, the Government needs to “encourage projects to buy from UK manufacturers wherever possible to truly benefit the UK economy.”

But hopefully with greater clarity over the direction of Brexit during the next five months, Mr Powell said a “Spring Budget will allow the Chancellor to focus on this key sector, which will inevitably be significantly impacted whatever the final deal looks like”.

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