While Rishi Sunak’s first budget delivered as Chancellor was understandably overshadowed by COVID-19 and the Government’s proposals for funding the response to the outbreak, there were several points to note for investors and business owners. We have highlighted some of the key announcements below.
Reduced capital gains tax relief for entrepreneurs
Entrepreneur’s relief, rumored to be scrapped in the build up to the budget announcement, has been retained but with the lifetime allowance reduced from £10m to £1m effective immediately. This means that business owners will only be able to pay a reduced capital gains tax rate of 10% on the first £1m of qualifying gains. This limit is reduced by any past gains, meaning that any business owners who have made past disposals may already exceed the new lower lifetime allowance. The rationale for the reduction is in response to evidence that the relief “has done little to incentivise entrepreneurial activity and that most of the benefit accrues to a small number of very affluent taxpayers” with the budget claiming that 80% of those who use the relief will be unaffected.
Increased benefits for property and technological investments
Changes to the Structures and Buildings Allowance (SBA) and Research and Development Expenditure Credit (RDEC) were announced in the budget with the aim of encouraging investment and driving innovation.
Property investors will benefit from an increase in the annual rate of capital allowances from 2% to 3%. This is only available for investments to renovate old, or construct new non-residential buildings so not all property developers will be able to benefit from this enhanced relief. The additional allowances are expected to provide c£1bn of additional tax relief by the end of 2025.
The RDEC rate is set to increase from 12% to 13%, meaning that companies undertaking research and development in scientific or technological fields will now receive a tax credit equivalent to 13% of any qualifying research and development costs. The tax credits are used to offset any corporation tax liability, meaning that these companies will benefit from a lower tax charge and higher post-tax profits.
Support for smaller businesses
A number of measures were announced to benefit smaller businesses in England in relation to COVID-19 and “businesses that (will) experience increased costs or disruptions to their cashflows” as a result, most notable of which are in relation to business rates for firms within England. Business rates for small businesses (those with a rateable value of less than £51,000) have been reduced to nil for the year through a 100% relief, a tax cut equating to £1bn. A £3,000 grant for small businesses that pay no business rates was also announced. These measures will not impact business in Scotland, Wales and Northern Ireland as business rates are set by the respective devolved parliaments.
While these measures will help smaller business in the shorter term, it will be interesting to understand the government’s longer-term plan for business rates. A fundamental review of business rates was also announced as part of the 2020 budget, the results of which are due in Autumn 2020.