No, this is not the Chancellor’s tip for Cheltenham Festival, but instead it was the focus of his Budget, something he mentioned a mere sixteen times throughout his speech.
George Osborne was able to make some pretty confident statements, including the fact that the Office for Budget Responsibility is predicting that the UK will be the fastest growing major economy in the world, whilst employment rates are currently the highest in the UK’s history. Add to this the fact that our deficit has reduced by two thirds from when he took over and you can understand why he was in a buoyant mood.
There were a lot of tax announcements made during his 64 minute speech, most of which were a surprise, which makes a change from previous Budgets where the bulk of the detail has been leaked in advance.
Our website contains more detail on a number of these points, but a summary of the announcements which will affect operators in the health and social care industry is outlined below:
- One of the biggest surprises was the reduction in the capital gains tax rates, from a main rate of 28% to 20% and on the lower rate from 18% to 10%. Unfortunately, for buy to let investors, the joy was short lived when the Chancellor announced there would be an 8% surcharge for residential property sales. However, for care operators with unusual structures or potential Entrepreneur’s Relief issues (such as care properties held outside of the trading company) the lowering of the CGT rate is very good news.
- Further changes to CGT included a £10m investment lifetime allowance as well as a £10m Entrepreneur’s relief allowance, which could have certain tax planning implications for larger and more complicated businesses.
- Increases to the income tax threshold to £11,500 should benefit employees in the care sector proportionally well compared to the general workforce, with the upper earnings limit rise to £45,000 also welcomed by more senior employees.
- Changes to the ESS (Employee Shareholder Scheme) may have an effect within the sector, as ESS is becoming more common as management incentive tool given many care businesses are not able to utilise EMI (Enterprise Management Incentives).
- Corporation tax is to be lowered even further than originally predicted, with a commitment to a 17% rate by 2020. This provides another reason for any care businesses not trading as a limited company to think about incorporation.
- Brought forward corporation tax losses will be available for offset against any income and in any group company from 1 April 2017 which will offer more flexibility for groups. Less welcome news for larger care operators is new rules to restrict relief for brought forward losses where profits are greater than £5m. From April 2017 only 50% of profits above £5m can be relieved by brought forward losses.
For operators who are providing care and/or support to service users with housing benefits or disability allowances, some further information has been provided:
Later this year, the government will publish a White Paper focusing on the roles that the health, care and welfare sectors can play in supporting disabled people and those with health conditions to get into and stay in work.
The date from which new or renewed tenancies in the social sector will be subject to the cap on Housing Benefit at the relevant Local Housing Allowance rate will be deferred for supported accommodation – from April 2016 to April 2017 – to enable the government to complete a review of supported accommodation. The government is considering the case for long-term reform of disability benefits and services that is fair for the taxpayer and for those with disabilities or health conditions.
There was the usual attack on large corporates, tax avoidance and evasion, with a range of measures seeking to bring in an extra £12bn in revenue by the end of the parliament.
Those measures include an increase in the tax charge on loans to shareholders from 25% to 32.5% and a restriction on the interest deductibility to 30% of the profits. This will affect care businesses which create large overdrawn directors loans (particularly in the year or two prior to sale), or those with institutional investors such as private equity backed businesses charging high interest costs.
To assist the next generation to save for retirement, a pension ISA is to be available for those aged between 18 and 40, whereby up to £4,000 can be put in per year, which will be matched by 25% of the amount contributed, by the government. This is likely to be of benefit to employees in the care sector, although the extent of the take up of the scheme has been questioned.
Although some believe the pension ISA may be the start of the end of pensions, the Chancellor did confirm that the lump sum tax free amount will remain, which was a relief to many.
With his monies now firmly on the Next Generation, the hope is that George is onto a winner, but only time will tell.
If you would like to discuss any of these points, or any other aspects of the budget you have seen in the press, please do not hesitate to contact a member of the Health and Care team.