On Wednesday 15 March the Chancellor of the Exchequer, Jeremy Hunt, set out the UK Government’s Spring Budget with the stated focus on growth, inflation and reducing the national debt.
As in the Autumn, there was little announced targeting offshore. The Chancellor’s focus was primarily on the Government growth strategy and boosting the labour force, with significant announcements expanding free childcare for working parents with children aged nine months to three years old.
In the biggest tax policy announcements, the Chancellor abolished the lifetime allowance charge and increased the annual allowance on pension contributions. The Chancellor also announced the introduction of “full expensing” for capital expenditure for three years from 1 April 2023.
A summary of the measures is detailed below:
Corporate tax
The UK corporate tax regime has been the subject of significant political debate, with many in Parliament calling for tax rates to be cut and others pushing for increased taxes on energy companies. The Chancellor has ultimately decided to proceed with the planned increase in corporation tax to 25% from 1 April 2023 and sought to boost investment through the introduction of “full expensing” for capital expenditure.
The Government also announced new funding for future technologies, with a new £1m “Manchester prize” for AI innovation, £2.5bn investment over 10 years to develop quantum technology and £100m for transformative R&D projects through the Innovation Acceleration programme.
Previously announced measures
- Planned increase in the corporation tax rate to 25% to go ahead, with the increase to take effect from 1 April 2023.
- Temporary increase in capital allowances to £1m per annum to be made permanent.
Measures announced in Spring Statement
- Full expensing on capital expenditure qualifying for the main rate of capital allowances and 50% first year allowances on capital expenditure qualifying for the special rate of capital allowances. This will be available from 1 April 2023 through to 31 March 2026 – although it is unclear whether this allowance will be restricted to expenditure incurred on contracts entered into after 15 March 2023. The allowance is limited to expenditure on “new” assets and will not be available on the acquisition of “used” assets.
- Introduction of a domestic top up tax under the OECD Pillar 2 proposals applying a 15% minimum rate to UK members of a domestic or multinational group. A multinational top up tax was introduced in the draft legislation issued in July 2022, and these measures were confirmed in the budget. Measures expected to apply to in-scope companies with accounting periods beginning on or after 31 December 2023.
- Refinements have been made to the Qualifying Asset Holding Company (‘QAHC’) regime to expand the scope of eligibility, including:
- The ability to elect to treat listed securities as unlisted to meet the conditions for the regime.
- Expansion of the genuine diversity of ownership test to consider multi-vehicle arrangements holistically rather than on an entity by entity basis.
- Expanded definition of qualifying entities to include entities that would be collective investment schemes if they were not body corporates
- Reforms to the REIT regime announced in December 2022 have been confirmed and expanded. Changes from 1 April 2023 include:
- A REIT can be formed holding a single commercial property, where the property is worth at least £20m.
- REITs will be allowed to pay property income distributions to a partnership shareholder by paying distributions partly gross and partly net of withholding tax.
The majority of tax announcements were focused on increasing domestic investment and productivity, however the permanent increase in the AIA rate and introduction of full expensing will be a benefit to many CI based businesses investing into the UK.
Changes to the QAHC regime and loosening of REIT regulations may also be of interest to persons investing in UK real estate via a Jersey hub.
Personal taxes
The biggest change has been to pensions, with two significant pension tax reliefs announced by the Chancellor to remove tax penalties on contributions to large pensions. This has been long discussed and an increase to the lifetime allowance was predicted, however the Chancellor went further by abolishing the lifetime allowance charge entirely.
- Following the changes announced in the Autumn Statement, the basic rate and additional rate thresholds will be frozen until April 2028.
- The annual allowance will increase on 6 April 2023 from £40,000 to £60,000 and the adjusted income limit will increase from £240,000 to £260,000. Where tapering applies, the minimum tapered annual allowance will increase from £4,000 to £10,000.
- The lifetime allowance is currently £1.07m, with the excess subject to an additional charge. This additional charge will be abolished from 6 April 2023, so pensions will only be subject to tax on drawdown. The lifetime allowance will continue to apply for the purposes of capping the tax-free lump sum.
- Changes will be made to CGT regulations to allow divorcing couples more time to reach financial settlement on separation. Transfers of assets between partners will be on a no gain/no loss basis for three years from the date couples stopped living together, and indefinitely for assets transferred under a formal divorce agreement.
- The Government has also announced the intention to create new investment vehicles tailored for defined contribution schemes to offer to their members with the aim of boosting pension investment into innovative enterprise.
As with corporation tax, the primary focus was on domestic taxpayers and, in particular, enticing early retires back into the labour market. The proposed creation of investment vehicles for defined contribution schemes may be of interest to Island residents with UK contribution schemes as a means of boosting returns on pension investments.
Tax avoidance
As noted, few specific measures anti-avoidance measures have been announced in the budget. The Government announced the intention to introduce a criminal offence for promoters of tax avoidance schemes who fail to comply with a legal notice to stop promoting.
An additional £47.2m in funding for to HMRC has also been announced specifically to improve HMRC’s management of tax debts, with a view to raising an additional £1.4bn over six years.
Other changes
In addition to the announced tax changes, the Chancellor also set out changes to the UK regulatory environment, with the following announcements:
- Introduction of “Investment zones” across the UK. Investment Zones will be special administrative regions benefitting from tax incentives, reduced regulation and planning liberalisation and the Chancellor confirmed the introduction of 12 zones across the UK.
- A discussion document has been published seeking views on making the tax administration system more efficient and simpler to navigate for taxpayers. The Government aim to encourage taxpayers to interact with HMRC digitally and reduce volumes of paper correspondence.
The Spring Finance Bill will be introduced at the end of month where we expect further details on the measures announced above.
If you have any questions or concerns about your business' tax position or the implications of the Spring Statement please get in touch with Zaeem or our tax team who will be happy to help.