What impact will yesterday’s Budget have on different areas of practice? We asked some lawyers how it will affect their work…
With a general election less than two months away, this year’s Budget was always going to be different. Tax lawyers are interested in the changes that are actually going to come into force, so this year we are most interested in what will be in the pre-election Finance Bill which will be published on 24 March and debated only on 25 March and then enacted – all in less than a week. There is likely to be another Finance Bill after the election – but its contents will depend upon the results of the election.
New measures announced in the Budget included welcome reductions in the tax burden for oil and gas companies, extra taxes on banks and additional anti-avoidance measures. Other measures focused on clamping down on tax avoidance and evasion.
The short timescale for the pre election Finance Bill means that large swathes of legislation will be enacted without proper Parliamentary scrutiny. This includes a whole new tax called diverted profits tax, aimed at multinationals not paying their “fair share” of UK tax. This was announced in December and we have seen some draft legislation. However, a new anti avoidance measure aimed at ‘refreshing’ corporate losses was announced only in the Budget and will be in that Bill.
The challenge for tax lawyers going forward is that this rush to enact legislation without proper scrutiny will lead to provisions that do not work properly and we will be in the unsatisfactory position where companies have to rely on guidance issued by HMRC because the legislation is unclear or too wide.
Pinsent Masons partner Catherine Robins
Two main pensions changes were announced in the 2015 Budget. Both of these (subject, of course, to the outcome of May’s general election) are to come into force in April 2016.
The first is a reduction in the “lifetime allowance”. The lifetime allowance is the maximum overall deemed value of a member’s benefits that he or she may build up in tax-registered pension schemes without incurring adverse tax charges.
The lifetime allowance is currently £1.25m, having been reduced to that level from 6 April 2014. It is now to be further reduced from 6 April 2016 to £1m – which is less generous than in sounds, if one considers the level of pension that £1m will typically secure. Transitional protections will be available, for people whose pension savings are already over the £1m figure (or who expect the value of their existing pension savings to exceed £1m by the time they retire).
From 6 April 2018, the lifetime allowance is to become linked to annual increases in the CPI. However, this will still leave the allowance at only about half the level it would have been had it kept pace with inflation from the outset.
Selling annuity income
From April 2016, the tax rules for registered pension schemes will let pensioners already receiving annuity income sell that income to a third party, subject to agreement from the annuity provider concerned. The proceeds of the sale could then be taken directly or drawn as income over a number of years, and would be taxed at the individual’s marginal rate.
The Government is consulting on the details, and in particular is inviting views on how best to ensure that pensioners are equipped to make an informed decision.
Linklaters senior pensions counsel Richard Kandler
The Chancellor has announced several measures which seek to encourage investment in the beleaguered UK oil and gas industry.
A new Investment Allowance to simplify the existing system of offshore allowances (which will exempt 62.5 per cent of profit from tax) and a 10 per cent reduction in the Supplementary Charge should provide investors with confidence in the long term future of the industry in the UK. Similarly the 15 per cent reduction in Petroleum Revenue Tax (to 35 per cent) for older fields will benefit investment in late life fields.
The government have also announced £20m pounds of funding for seismic surveys for areas of the UK Continental Shelf which have been under explored. This should open up development opportunities in blocks which have so far been under developed.
The impact of the budget for the oil and gas sector is that lawyers could potentially see companies reconsider investment decisions in the UK. The government anticipates the measures will deliver over £4bn of additional investment in the North Sea over the next five years. Although the impact of the tax reductions may not be immediate (due to many companies having trading losses at present); the government’s investment in the industry should help to rebuild confidence in the North Sea. All in all, good news for the industry and for energy lawyers working within it.
Bond Dickinson head of oil and gas Paul Stockley