The long-trailed 2014 budget yesterday (19 March) brought few surprises to the legal business community, although nonetheless some disappointment, as it confirmed that changes to the way limited liability partnerships (LLPs) are taxed will be pushed through in April.
Despite well-publicised calls from the profession and the House of Lords Economic Affairs Committee for the Government to push back plans to revise the way LLPs are taxed, the budget confirmed that any LLP partner with under 25% of their salary attached to profits will be regarded as having a ‘disguised’ salary and be taxed as an employee.
At Macfarlanes, tax partner Ashley Greenbank said: ‘There is disappointment from a few people that the partnership changes were not deferred like the House of Lords had recommended. It didn’t look like they were going to move on it but it would have given a bit more credence to their consultation processes if they had deferred it as people had been asking.’
Of relevance to private client teams and partners themselves was the only unexpected announcement in the budget: the Chancellor will relax some of the conditions allowing money to be taken out of pensions on retirement without triggering a penal 55% tax charge. Taxpayers will be allowed almost complete flexibility to access their pensions savings from April 2015, subject to paying tax at their income tax rate.
George Bull, Baker Tilly’s national chair of the professional practices group, told Legal Business: ‘These changes are applicable to any employee in a direct contribution pension scheme and any partner with a SIPP [self-invested personal pension].
‘Up until now there have been severe limits on how you can use your investment and a 55% charge for taking money out but partners will now find they have a lot more flexibility.’
While Bull points out that the application of the income tax rate to withdrawals means it may not be cost effective to reinvest money in asset classes already approved under the scheme, for non-approved assets, such as lucrative buy-to-let properties, this could result in ‘terrific’ capital appreciation.
For businesses looking to build, move or refit new premises, there is a provision in the latest budget that the 100% annual investment allowance will be doubled from £250,000 to £500,000 up to December 2015, after which it will drop back to £25,000.
Macfarlanes tax partner Andrew Loan said: ‘The allowance provides an immediate 100 per cent tax deduction for expenditure on plant and machinery, and businesses should consider when best to invest to make the most of the increased allowances.’
Meanwhile, more residential properties bought as part of an investment ‘envelope’ by non-UK residents will be caught by a penal 15% stamp duty land tax charge, extended to properties of over £500,000 instead of over £2m.
Forsters corporate partner Elizabeth Small says: ‘In a surprise move, the regime for enveloped properties has been extended dramatically to include properties worth over £500,000.
‘Interestingly we still have not received information on how non-residents will be subject to capital gains tax in respect of gains on residential property: this must be proving very difficult.’
The days of the budget being a closely guarded secret have been consigned to the past, and Norton Rose Fulbright tax partner Dominic Stuttaford said: ‘There is less surprise than there used to be because a lot of measures were preannounced by the Chancellor, so quite a lot of the budget was expected and the Chancellor confirmed it was going ahead.’
But while being described as relatively low-impact, of good news to UK businesses was the Chancellor’s, albeit expected revised growth forecast for the UK economy: up to 2.7% from 2.4% in last year’s autumn statement, and up from 1.8% a year ago, marking the biggest upward revision to growth between budgets for at least 30 years.