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UK legal experts comment on Budget 2021

Chancellor Rishi Sunak today set out plans for the future in the 2021 Budget – here, legal experts at UK law firm Shoosmiths offer their views on these announcements.

Shoosmiths’ head of financial services, Stephen Dawson, observes: “We see something of a “buy now pay later” budget with ongoing significant financial commitment to support the economy. This includes the commitment to freeze personal taxation until 2026. The level of increase in corporation tax appears to be a major reach into the coffers of larger businesses, who may have already committed to return of furlough money or declined to use government assistance. The views on the economic bounce-back potential for the UK economy are encouraging, if not very positive.”

Leeds-based partner and head of infrastructure and energy, James Wood-Robertson, said: “Despite the geographic spread, with fewer than half of the eight successful Freeport bidders in the North, the Chancellor’s focus on those Northern freeports in his Budget speech recognises their political significance and role they will play in the levelling up agenda. What he called “old industrial sites” being revolutionised into industrial hubs promoting the UK’s building back stronger agenda will certainly be helped by the Treasury being “just down the road” in Darlington and the UK infrastructure bank “only an hour away”.

“And not just building back stronger but building back greener. Freeports will support the delivery of the UK’s clean energy revolution, along with other measures in the budget including the UK Infrastructure Bank in Leeds, Hydrogen in Holyhead and the support for unlocking investment and innovation

“As the dust settles and the fanfare fades, the successful freeport bidders will need to work out how they are going to implement the plans they were asked to formulate in short order. The unsuccessful bidders, at least for now, will also seek to understand the implications for them. In any event, we will all be hoping that the freeports deliver on their promises to bring additionality and innovation and boost the UK as a trading power.”

Shoosmiths partner and head of living, Catherine Williams, commented: “Rishi Sunak didn’t spring any radical surprises on us today from a Living perspective. The SDLT break up to £500, 000 was extended by three months and to avoid a new hard longstop he has tapered the nil rate band to £250,000 until the end of September before we revert to the usual £125,000 threshold.

“Despite the Build to Rent sector being seen as a key growth area Sunak and the Conservatives are pushing the Thatcherite mantra of buying over renting (again). The slogan of turning Generation Rent to Generation Buy pre-empted the announcement of a low deposit mortgage guarantee fund reminiscent of the Cameron/Osborne Help to Buy scheme.

“These announcements are, of course, a boon to our industry (specifically housebuilders whose share price has leapt since the announcement) but we did hold out hope for some more root and branch changes to SDLT.”

Corporate partner, Ben Turner, commented on the Capital Gains Tax (CGT) announcement: “Following on from the Office of Tax Simplification’s review into CGT last November, there had been extensive press speculation that the Chancellor would increase CGT rate increases in the Budget. Inevitably this led to the recent spike in M&A activity as sellers pushed to get deals across the line before today.

“The Chancellor, mindful of the ongoing impact of the pandemic, has taken the prudent view not to disrupt the M&A market. As a result, our expectation is that M&A will continue to run hot for the foreseeable future driven by high demand from PE and overseas buyers and those sellers, potentially sitting on large CGT gains, looking to realise value before future increases.

One potential note of caution however - it is clear from the OTS report that they consider CGT to be ripe for reform in the future.”

Tax partner Tom Wilde said: “The Budget this year is not really the main event from a tax policy perspective, at least not with regards to the whole range of medium to long-term decisions. ‘Tax Day’, as it’s being called, on 23 March is when the Government will publish a number of consultations relating to possible long-term changes in Government tax policy. It is these that will give us an overall picture of how the Chancellor is intending to repair the damage to the public finances caused by the Covid pandemic.

“So today’s Budget was much more of a tax starter than a main course, although there were a few significant announcements worth mentioning including an extension of the SDLT holiday until 30 June (with a larger nil rate band of £250k available until the end of September), a freeze from next year of the income tax personal allowance and higher rate thresholds, and an increase in the rate of corporation tax to 25% from April 2023 for companies making £250k profit a year or more.

“One further thought - given that so many of the Budget announcements were trailed in the media ahead of time, it would have saved a larger number of entrepreneurs (and their advisers!) significant stress if the Chancellor could have indicated that he didn’t intend to raise the rates of CGT with effect from today. Whilst such a rise during lockdown was always unlikely, for those people in the midst of selling their businesses or companies it has caused an unnecessary and preventable mad dash to complete those transactions before today.”

Shoosmiths partner and head of conveyancing, David Parton added: “In delivering the Budget on 3rd March, Chancellor Rishi Sunak announced an extension to the Stamp Duty Relief scheme that had been introduced in July 2020 to stimulate the housing market after three month’s dormancy of the first Coronavirus Pandemic Lockdown.

The extension when first introduced, increased the nil rate band before Stamp Duty Land Tax is triggered for homebuyers from £125,000 to £500,000 with savings of up to £15,000 for purchasers of property bought for £500,000 and above. This relief was due to end on 31 March 2021.

However, the third Coronavirus lockdown experienced entering 2021 has created congestion in the property sector, with many associated professionals working from home or equivalent safeguarding restrictions, combined with similar challenges to housebuilders, their workers and contractors.

As a consequence there has been widespread pressure on the Chancellor to extend the relief period and he reacted positively extending the relief to £500,000 until 30 June 2021, then reducing the nil rate band to £250,000 for completions between 01 July and 30 September this year, before reinstating the standard rate £125,000 nil rate band from 01 October.

These tapered extensions will doubtless be welcomed by both consumers, housebuilders and estate agents and has also take some of the immediate pressure off conveyancers and lenders, but in many respects they introduce further step challenges to the residential property market as each reducing relief quarter date dawns.

We suggested to the Chancellor and Treasury in mid-January what we considered to be a softer impact to avoid a market step changes (whilst alleviating the pressure) and we’ve seen subsequent lobbying by a number of professional property bodies followed with similar proposals to alleviate industry pressure.”

However, whilst the full details are awaited, the announcements in the Budget have effectively served to create three quarter end step events:

  • those clients already targeting what was the pre-Easter first deadline, fixed now in their minds that they would be moving imminently.
  • then at the end of June with those clients whose transactions couldn’t achieve an end March target seeking to maximise the nil rate band benefit but also creating an opportunity for more latecomers to try and beat either of the later deadlines through the late Spring and then Summer period.
  • removing all relief at end September may take the wind out of the market’s sails entirely as we enter the Autumn, flattening the market for six months before the customary Spring resurgence.

What’s clear is that those who actually project manage the conveyancing and lending work that arises from transactions agreed are now faced with a difficult year. How immediately to react and give a client an estimate of the expenses to budget for against this backdrop when embarking on a transaction is likely to become even more difficult, with three variable rates depending upon the date of completion in 2021 to account on top of complexities depending upon the status of the buyer with different rules for the first time buyer, property investor or company purchaser or whether the buyer is UK- resident.”

Key employment aspects of the budget were followed closely by Shoosmiths’ employment team. Professional Support Lawyer, Antonia Blackwell, comments: “As has been widely anticipated, there will be an extension to the Coronavirus Job Retention Scheme. The furlough scheme was due to end on 30 April but will be extended until 30 September 2021.

“Currently, employees receive 80% of their wages for the hours they cannot work, up to a cap of £2,500 per month, the full amount of which can be claimed from the government under the scheme with employers paying the tax, National Insurance and pension contributions on the government grant. Whilst employees will continue to receive 80% of their wages up to the cap until the scheme ends, from July, employers will be asked to contribute towards 10% of those wages (along with the tax, NICs and pension contributions) with the government covering the remaining 70%. This will rise to a 20% from employers for August and September with the government contribution reducing to 60%.

“Again, as was anticipated, there will be an extension to the Self Employed Income Support Scheme. The SEISS will also be extended to 30 September 2021. The fourth grant, available to claim from April, will cover the period February to April 2021 and will be up to 80% of average trading profits for 3 months up to a cap of £7,500. A fifth grant has also been announced for the period May to September 2021, available from July, again based on 3 months average trading profits. However the level of this fifth grant will be dependent on the extent of fall in turnover as a result of the pandemic. For those self-employed individuals who have suffered a fall in turnover of 30% or more, they can continue to receive the full 80% grant. For other organisations will a fall in turnover of less than 30%, the grant will be 30%. Those self-employed individuals who have filed their 2019/2020 tax return by the deadline of 2 March will also now be eligible to claim the fourth and fifth grants. This will enable an additional 600,000 self-employed people to access the government grants.

“It was also predicted that there would be an extension to the uplift to Universal Credit. The £20-per-week uplift, which had been due to end on 31 March, will be extended for six months, after intense pressure from MPs and charities to do more to help the poor get through the pandemic. This will be paid as a one-off payment of £500.

“There will also be increased support for apprenticeships. Alongside an additional £126 million available to triple the number of apprenticeships, the incentive payments made to employers hiring new apprentices will be increased to £3,000 for each new apprentice, of any age, hired between 1 April and 30 September 2021. There will also be a new flexi-apprenticeship programme to allow people to work for a number of different employers in the same sector.”

On pensions, partner Suzie Burrell said: “The lifetime allowance (which is the overall maximum an individual can accumulate in their pension) has been frozen at £1,073,100 until 2026. When the LTA was reduced to £1m in 2016, the Chancellor announced that from 2018, it would be increased in line with CPI. In freezing the Lifetime Allowance, a greater number of individuals will be subject to the limit and therefore to tax (the lifetime allowance charge) on the excess. This is likely to affect medium to high earners who are still accruing defined benefit pensions, particularly those in the public sector. In addition, employers may see increased demand from more senior members of their workforce for alternative forms of reward besides saving into a pension scheme.”

Shoosmiths partner and head of technology, James Klein, said: “The 2021 budget is being celebrated by most advocates in the UK tech market. It contains numerous features which are designed to boost the entire ecosystem: from grass-roots start-ups through to established tech players. At the top of the food chain, mooted listing rules reforms (e.g. allowing for dual class shares that give power to founders and liberalising SPAC rules) directly aim to increase London’s desirability as a listing destination for technology companies. These reforms are largely “catch-up” measures to modernise the UK’s public markets in line with other jurisdictions like the US. Encouraging tech-talent to move to the UK was the clear aim of introducing unsponsored visas for science, research and tech workers and expanding the scale-up/entrepreneur visa system. Further, the Future Fund scheme makes a return under the 2021 budget, with the government providing £375m for direct investment in high growth start-ups. Finally, the Help to Grow scheme aims to support smaller business and help them adapt to the digital age by providing for free digital training and a contribution towards productivity software. In all, these initiatives illustrate the government’s clear intention to make the UK the Silicon Valley of Europe and are cause for celebration for anyone who is involved or has an interest in the technology sector.”

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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