Chancellor’s ‘tales of the unexpected’ Budget speech points to another full fiscal event in the spring
“Much of the Budget/Brexit commentary leading up to today’s speech was on the basis that the chancellor was facing the once-in-a-year chance to set the shape of the tax system prior to leaving the EU on March 29, 2019. While this is the implication of moving to a “single fiscal event”, with an Autumn Budget and Spring (Economic) Statement, the chancellor had been careful to make sure that he has enough wriggle room to once again hold a Spring Budget if warranted. The chancellor has today confirmed that, if there is a no-deal Brexit, there will be another full fiscal event early next year, upgrading the Spring Statement to a Spring Budget. It’s clear that Brexit might satisfy the ‘economic circumstances required of it’ but perhaps the “unexpected” might be a little more debatable.”
Chancellor focuses in on digital tax, but draws away from the EU model
“The chancellor committed today to delivering a new turnover tax on digital services. In moving away from the EU blueprint, the chancellor set the rate at 2% (compared to the EU proposal of 3%) and targeted the tax at social media platforms, internet marketplaces and search engines. He also committed to a review in 2025, clearly indicating that he thinks that it may take quite a while for the OECD to gain any consensus on the international stage. The new tax will raise £440 million per annum by the end of the Budget period but will include elements to protect those with low revenues and margins – namely technology start-ups.
“In drawing distinctions from the model under discussion in Europe, the chancellor can be seen to be, once again, leading the debate in this contentious area, and we now wait to see which other countries follow in this battle over who should have the right to tax the profits of the internet giants. Caught up in the disputes between governments, businesses face the risk of double taxation and complex rules. That isn’t the best environment to encourage innovation at a time when the chancellor is looking to the digital sector to boost the economy.”
No magic spell for housing
“With housing stubbornly remaining near the top of the public’s list of concerns, we saw the chancellor offer a few tricks and treats but no magic spell to make the crisis disappear. The measures announced, while positive, unfortunately will not, individually or collectively, solve one of the most pressing problems faced by the country.”
Private Residence Relief (PRR) restrictions make for a less flexible workforce
“The chancellor’s changes to PRR announced in today’s Budget could make the UK’s workforce less flexible and less able to react to changes in the jobs market – or at least leave them with a tax bill for being flexible.
“PRR takes the gain on the sale of an individual’s main residence outside of capital gains tax. At present, where a home has met the conditions to qualify for this relief at any time, it is assumed to do so for the final 18 months. This was already reduced from 36 months from April 2014 and has now been further reduced to nine months. For those having difficulty selling a property and needing to move home for work or other reasons, this may prove an expensive change to this relief.
“Furthermore, those affected will no longer be able to benefit from tax relief if they let out their home. Currently, any gain relating to the letting of a main residence can benefit from an exemption up to a maximum of £40,000. Its abolition could mean an additional £11,200 tax bill for some.
“The PRR grace period at the end of ownership was originally introduced to recognise the time it can take for individuals to sell properties. Its reduction to nine months potentially leaves those needing to move home exposed to capital gains tax for the first time. To compound the issue, capital gains on residential property is 28%, even for basic rate taxpayers.”