Kuber Budget 2016 report

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Date21 Mar 2016
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Categories

Last week’s budget was the 3rd delivered by the Chancellor of the Exchequer without the constraints of a coalition government.  The Chancellor highlighted the concerns that he has over the World Economy with the various risks we are facing, such as the slump in oil prices, the concerns over the Chinese Economy and closer to home, the political uncertainty over the upcoming Brexit referendum.

All of this uncertainty increases the volatility in the capital markets and this has been clear to see over the last few months with some significant losses experienced in listed equities over 12 months.  Non-listed investments on the other hand are to an extent sheltered from the market turmoil and we have seen some strong performances in the portfolios available on Kuber over the last year with growth investments exceeding expectations across the board.

Overall the budget was positive for investment in small businesses.  The venture capital schemes regime which includes EIS, SEIS and VCTs already gave exceptional tax incentives to encourage investment in UK business.  The budget made the potential success of such investments all the more likely with generous handouts including cuts to corporation tax, extended relief to small business rates and a number of other measures designed to help business thrive and grow.  All of this will go towards making investment in SMEs more attractive.

Key highlights of the budget and their relevance to EIS, SEIS and BPR

Corporation tax relief
The rate of corporation tax was cut alongside business rates making the environment more attractive for growth EIS and BPR investments.

Tax relief on financial advice
There is to be a consultation on introducing a Pensions Advice Allowance over summer 2016, this will allow people to withdraw £500 tax free before the age of 55 from their defined contribution pension to redeem against the cost of financial advice – the exact age at which people can do this will be determined by consultation.

Although modest, this will be a welcome additional means of efficiently paying for financial advice.  The rebates available through the Kuber platform are also a tax efficient means of paying for advice and the Kuber Platform facilitates adviser charges.

Capital gains tax changes
There were some major changes to the Capital Gains Tax regime, reducing the rates of tax payable from 28% to 20% and 18% to 10%.  The exception is residential property which will continue to be taxed at the current rates.

People who have realised a gain as far back as 2013 can reinvest this in an EIS, reclaiming the CGT they have paid and deferring the gain into the new tax regime, gaining an immediate saving.

Pensions
The predicted changes to pensions did not materialise although this was announced before the budget.  The Chancellor did introduce a new Pension ISA for the under 40s and the recent changes to the pensions regime will mean that many people who previously made substantial tax efficient savings via their pensions will no longer be able to do so.

EIS is an obvious alternative solution and individuals are able to make regular savings into EIS via the Kuber platform.

Changes to the EIS regime
There were some technical clarifications to the EIS and VCT regulations which are not expected to affect individuals providing the investee company has obtained advanced assurance.  These include clarifications of EIS rules that relate to the calculation of average turnover for older companies seeking to raise capital for the first time.  The VCT rules relate to the type of non-qualifying investments that fund managers can access.