What does the Budget mean for you?
The Chancellor’s Spring Budget was important for the leisure industry as it looks to recover and reopen in the second half of 2021. Whilst many are already experiencing high demand for the forthcoming season, there were a number of points of interest relating to capital taxation in the Spring Statement which have implications for those who own leisure property:
Capital Gains Tax Rates (CGT)
There have been no changes to the rate of CGT proposed in the latest Budget. The rate remains at 10% or 20% depending on individual income tax brackets. Higher rates of 18% or 28% apply for certain property related gains, with the exception of elements qualifying for private residence relief.
Business Asset Disposal Relief
Previously known as Entrepreneurs’ Relief – The lifetime limit for BADR was reduced from £10m to £1m in March 2020. The current BAD relief of 10% for qualifying assets will remain, but there has been no guarantee extended to preserving this form of relief, as is the case with CGT annual exemptions and Inheritance Tax nil rate bands.
CGT annual exemption
The annual CGT exemption remains at £12,300 for 2021/2022.
Although Fenn Wright are not tax specialists, we are in communication with those who are. Some are suggesting that the nil increase in CGT and IHT might be short lived. These areas of capital taxation could increase, particularly considering the Government’s previous promises not to increase income tax, National Insurance and VAT.
The Institute of Fiscal Studies (IFS) estimates Government debt will stand at 110% of National Income by 2024-25 and the IFS predict an extra £40 billion per year will need to be raised by the Government by 2025. A Government report by the Office for Tax Simplification (OTS) in November 2020 made recommendations that Capital Gain Tax (CGT) should be increased to align with Income Tax rates and to reduce the CGT allowance.
The result could be a higher tax bill for those not considering a sale until the end of 2021 onwards. There is also the threat of removing BADR (CGT relief at 10%) for retiring business operators, which again could be under review in the autumn or future years, as the Government comes under pressure to start recovering Covid related spending. From a buyer’s perspective, although Stamp Duty Land Tax rates are set for this year, this could change going into 2022, as the tapered relief comes to an end.
In response, we expect owners who are considering a sale in the short term, to carefully consider their timing and to start planning ahead. The increase in lifestyle buyers and general market activity as a result of Covid-19 may also encourage more vendors to consider a sale prior to the autumn, whilst the market is active and tax implications are known and quantifiable.