Budget 2016: Impact on the Motor Retail sector
Posted On March 18, 2016 By mhauk
Having previously announced increases in dividend tax rates for 2016/17, the Chancellor had some good news for small business owners in his Budget Speech. Principally these revolved around more attractive corporation tax and capital gains tax rates.
Capital gains tax
Most dealers would expect to pay just 10% capital gains tax when they sell their company, by virtue of Entrepreneurs’ Relief. However, the relief only applies to the first £10 million of capital gains. Above that level, the main rate of capital gains tax is payable. The main rate of capital gains tax is to be cut from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers with effect from 6 April 2016. This is a welcome tax reduction for larger dealers who will have gains exceeding their £10 million lifetime allowance.
Please note that capital gains made on buy-to-let properties and second homes will still be subject to capital gains tax at the old rates of 18% or 28%.
Extension of Entrepreneurs’ Relief
Entrepreneurs’ Relief (ER), which as noted above gives a 10% tax rate for qualifying disposals, is to be expanded to long-term investors in unquoted companies. In a departure from the current conditions for ER, the investor will not have to be an employee or officer of the company, or hold at least 5% of the share capital. As long as the investor subscribes for the shares after 16 March 2016, and holds them for at least three years from 6 April 2016, the gain on sale will be taxed at 10%. There will be a lifetime cap on these investor gains of £10 million, which will apply separately to the lifetime cap for other ER gains. This may be an attractive way for dealers to raise additional finance in their companies.
Nearly all companies now pay Corporation Tax at the single rate of 20%. This rate will drop to 19% on 1 April 2017. The Government now proposes to reduce the Corporation Tax rate to 17% from 1 April 2020, rather than the previously announced 18%.
Companies with profits over £1.5 million pay Corporation Tax in quarterly instalments. Those with profits over £20 million will see the timing of those instalments accelerated by four months for periods beginning on/after 1 April 2019 (not 2017 as previously proposed).
In advance of the budget, many dealers had increased contributions into their pension schemes ahead of possible restrictions on pension tax relief. Thankfully, no further changes to pension tax relief were announced. However, under previous announcements, from 6 April 2016 there will be a tapered reduction in the Annual Allowance (AA) for most people with income (including pension contributions) above £150,000. At income above £210,000 the £40,000 AA is reduced to the minimum of £10,000. The Lifetime Allowance for tax-relieved pension savings is cut from £1.25m to £1m from 6 April 2016. Those affected by the changes should consider claiming ‘fixed’ or ‘individual’ protection, but these are investment decisions requiring appropriate advice.
Company car tax
As previously announced, the appropriate percentages for most company cars will increase at 6 April 2016 and continue to rise in future years. Diesel cars continue to be subject to a 3% supplement, subject to the 37% maximum charge.
Zero emission vans
The tax charge for zero emission vans will remain at 20% of the standard charge for 2016/17, rather than increasing to 40% as originally planned. The standard charge for a company van is set at £3,170, meaning that the amount charged to tax on a zero emission van will now be £634. Consequently, a basic rate taxpayer will pay tax of £126.80 on a zero emission van and a higher rate taxpayer will pay £253.60.
Capital allowances for cars
Until April 2018, businesses purchasing new cars with CO2 emissions below 75g/km are able to claim a 100% first year allowance. The 100% first year allowance for low emission cars is to be extended for another three years, until April 2021. However, the qualifying emissions threshold will fall to 50g/km from April 2018.
The threshold for cars eligible for the 18% pa rate of capital allowances will be reduced from 130g/km to 110g/km from April 2018. Cars with emissions above this threshold are only eligible for 8% pa rate of capital allowances.
SDLT on commercial property
The rules for calculating SDLT on non-residential properties are reformed with effect from 17 March 2016. For property deals completed before that date, SDLT is charged at a single rate on the whole price paid for the property, under the so-called ‘slab’ system.
Where non-residential property is sold on and after 17 March 2016, the SDLT charge will be calculated according to the value falling within each band, as applies for SDLT on residential properties.
Dealers buying a commercial property for less than £1.05 million will pay less duty. Purchases above this level will unfortunately result in more duty than under the existing rules. This ties in with the overall theme of the Chancellor’s budget, which was targeting larger businesses to help smaller ones.
The new bands are:
- 0% up to £150,000
- 2% £150,001 to £250,000
- 5% over £250,000
Purchasers who exchanged before 17 March 2016, but completed after that date, will have a choice whether they pay SDLT under the new or the old rules.
Also from 17 March 2016, a new 2% rate will apply to new leasehold transactions where the net present value of the rent is more than £5 million.
These changes don’t apply to properties in Scotland where Land and Buildings Transaction Tax (LBTT) is set by the Scottish Government.
Contact us If you would like to understand more about any of these areas or would like to discuss this with a member of our Motor Team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in touch with your local representative.