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Autumn Budget 2017: fit for the future?

23 November 2017

 

The Budget in a sentence or two: if you’re involved in any way in property or high-tech or fast-growth businesses, read on.  Otherwise, find something more interesting and/or profitable to do for the next few minutes.  Oh, unless you are lucky enough to run a Tesla – in which case skip to the end.

Property proposals

The big issue is about property.  In particular it’s about increasing the supply of housing and helping first-time buyers onto the housing ladder.

Over the next five years the government intends to commit at least £44 billion to support the housing market by way of capital funding, loans and guarantees.  (In passing, we note that that’s roughly what commentators are suggesting may be the cost of leaving the EU, and a bit less than the estimated cost of HS2:  readers will decide for themselves which of the three is likely to give better value).   And government expressly doesn’t want to depend on the major national housebuilders to deliver the goods: they see a lot of the growth as coming from the SME (small and medium-sized enterprise) housebuilding sector.

What this means, it seems to us, is that the next five years are likely to be good years for private builders and developers, and probably good for owner-occupiers and tenants as the measures start to deliver more affordable properties for rent or purchase as supply comes closer to meeting demand.  In the long term it’s probably less attractive for property investors who have got used to an apparently hardwired annual increase in the value of their portfolio in recent years.

In the immediate future, it’s very good news for first-time buyers with Stamp Duty Land Tax (“SDLT”) removed on the first £300,000 of purchase price for properties costing up to £500,000; but whether that SDLT saving will in the medium term translate itself into house price inflation, as previous SDLT holidays seem to have done, remains to be seen.

Offshore investors in commercial property will be much less happy.  Following the 2015 extension of Capital Gains Tax to gains made by non-UK-resident owners of residential property, the levy is now to be extended (from 2019) to gains on commercial property, with anti-forestalling rules in place from Budget Day to counter any clever prophylactic planning.  Furthermore, the charge will be extended (both for residential and commercial property) to include not only direct disposals but indirect disposals (such as of shares in certain property-owning companies).

The detail is subject to consultation over the next three months, but the principle is clear.  It will be of no consolation to non-UK-residents to be told that in implementing a measure of this kind, the UK is doing nothing more than bringing itself into line with most other developed economies: but it is nonetheless true.

Technology take-on

The other main focus of the Budget is on what Mr Hammond describes as “keeping Britain at the forefront of this technological revolution”.  He means, inter alia, supporting high-tech high-growth businesses.

The annual limit for individuals investing under the Enterprise Investment Scheme (“EIS”) will be doubled to £2m, provided anything above £1m is invested in “knowledge-intensive companies” (“KICs”); the annual limit on the amount of EIS and Venture Capital Trust (“VCT”) money that a KIC can raise is also doubled, to £10m; and the rules will be changed to give greater flexibility in deciding whether a KIC meets the “permitted age” requirement for raising money under the schemes.

The EIS, SEIS (Seed EIS) and VCT will also be changed to focus relief on higher-risk companies with high growth potential, and denying it to low-risk “capital preservation” arrangements.  And there’s to be consultation both on a new knowledge-intensive EIS fund structure which will have the flexibility to deploy capital raised over a longer period and on streamlining and improving the EIS and VCT advance assurance arrangements – something which in our experience is well overdue.

One bugbear of raising external finance has been that once a founder is diluted below 5%, Entrepreneurs’ Relief ceases to be available on any subsequent gain.  Government recognise the problem and have committed to examining ways of addressing it.

On the research and development (“R&D”) side, companies which claim the repayable tax credit (normally larger companies) benefit from a 1% increase in the rate of credit, taking it to 12%.  All companies potentially benefit (eventually) from a pilot scheme to give pre-filing advance clearance on eligibility for R&D relief.

For a comprehensive rundown of the Autumn Budget proposals, take a look at our article here.  And for detailed advice on how you or your business may be affected, please get in touch with your usual BKL contact or use our enquiry form.

And the Tesla?  Well, if you charge your electric or hybrid car at a workplace charging point at your employer’s cost, you will no longer (from April) be charged to Income Tax on the benefit of the free electricity.  Some people have all the luck.

Our other Autumn Budget 2017 articles: