Today’s Budget: Were our predictions right?

Pat Dugdale

By way of “marking my own homework”, I have revisited my Budget predictions post to see how many I got right.  Updates in bold type and words in colour are live links to blog posts or documents. Overall not a bad effort if I may say so myself.


• extension of corporation tax to non-UK resident companies; will this apply only to UK rental and trading income already charged to income tax or wider categories of income and gains?  See next bullet for the headline news on capital gains. We will know more about income aspects when the responses to consultation are published next week.

• capital gains tax liability for non-residents selling UK commercial property; a potentially popular move but one which successive chancellors have resisted in the interests of encouraging inward investment;   Correct. It is proposed to bring non-residents into charge to tax on gains from April 2019, not only on direct sales of UK commercial real estate but also on sale of holdings of 25% or more in “property rich companies” and other vehicles. This is likely to have a major impact on overseas investors in UK real estate. See Jacob Gilkes’s  blog post on this for further information. There will be a lot more to say about this during the consultation period.

• measures to help Generation Rent, first time property buyers – possibly SDLT exemption;   Yes, a new exemption for first time buyers paying up to £300,000 and, for those paying up to £500,000 exemption on the first £300,000. No relief for purchase of properties for more than £500,000, so not much headroom if buying in London.

• possible mitigation of George Osborne’s SDLT increase and interest restriction measures targeting buy-to-let landlords; Nothing to report on this.

• changes to entrepreneurs’ relief, Enterprise Investment Scheme and other venture capital reliefs in light of the Patient Capital Review;   Several measures to report on this. Increase of the investment threshhold for investment in knowledge-rich companies but restrictions on relief for lower risk investments, particularly those designed to provide capital protection. see my colleagues’ more detailed blogs for further details.

• possible consultation on measures to increase tax revenues from the digital economy;   The protection of our tax base will have to be dealt with as part of an international response, including a recently-announced EU initiative. However the Government has published a positon paper giving its views on how to address this challenge.  Measures include expanding the circumstances in which UK income tax can be charged on payments of royalties to non-UK residents and also making online market places liable for unpaid VAT liabilities of some online sellers. See Richard Taylor’s blog post for further information.

• Oil and Gas: allowing the tax history of North Sea assets to be transferred from sellers to buyers, mitigating the effective cost of decommissioning for buyers of late-life assets.  Correctly predicted: see the blog post by Philip Reid

• transfer pricing: introduction of secondary adjustments deeming excess payments to be loans at interest.  This was the subject of a consultation last year but was not in subsequent Finance Bills.  It was not mentioned in the Budget Speech but might be in the forthcoming Finance Bill if the idea has not been dropped.

• extension to the private sector of the personal service company provisions affecting public sector clients.  A possibility: the Government says it will consult on this next year. See Nicholas Stretch’s blog post for further details.

• changes to the tax treatment of the self-employed, bringing their NICs burden closer in line with that of employees (despite the abortive attempt to do this in the Spring Budget).  The abolition of class 2 NICs is to be delayed until April 2019 but there was no announcement of any increase in the rate of class 4 contributions. Some aspects of the disguised remuneration legislation are to be extended to the self employed.

• other measures to prevent tax leakage through the so-called “gig economy”.  This was the subject of a report by the Office of Tax Simplification in June 2017 which raised issues but did not propose solutions. There were no concrete announcements in the Budget.

• changes to the tax treatment of partnerships, authorised investment funds, unit trusts and offshore funds.  The Finance Bill will contain detailed legislation clarifying the tax treatment of partnerships, including provisions requiring allocations of profit in the same ratio as the commercial profits. See Graham Chase’s blog post for more details.

• reduction in the VAT registration threshold and changes to VAT grouping rules.  The Chancellor has decided not to reduce the VAT registration threshold as it relieves the compliance burden on small businesses. Instead it will be frozen for two years. This is despite the fact that the UK has by far the highest VAT registration threshold in the EU and that it can cause distortion as businesses try to restrict their turnover to avoid the need to  charge VAT. The Government will publish its response to the consultation on VAT grouping on 1st December.


Some further  announcements not on our predictions list:

  • Capital gains tax: freezing of indexation relief for companies to the amount fixed by the Retail Price Index for December 2017 on disposals on or after 1 January 2018. Also removal of the six year time limit within which companies must adjust for any depreciatory transactions when claiming a capital loss on disposal of shares in a group company. On the positive side, removal of an anomaly which triggers a postponed tax charge when a new holding company is inserted above a non-UK company to which a UK company has transferred its trade and assets in exchange for shares.
  • Intangible fixed assets: counteraction of related party step-up schemes involving licences; with immediate effect all licences for non-cash consideration will be treated as taking place for market value rather than the licensor being able to recognise only net book value while the licensee recognises a higher market value.  This extends to licences the 2015 provisions that countered step-up scheme avoidance involving transfers.
  • Restriction of double tax relief available to a UK company for foreign tax paid by its foreign branch or other permanent establishment (PE)  where the company has received relief for losses against non-PE profits in the foreign jurisdiction.


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