Finance

Budget 2013: Osborne's Standard budget for lenders

A review of the key points raised in Budget 2013 for lenders and their clients.

George Osborne admitted in his Budget speech that the economic recovery is taking longer than anyone had hoped; but we are getting there, slowly. He is sticking to his guns on reducing the deficit through reducing borrowings and is confident that we will avoid a treble dip recession with a growth forecast for 2013 of 0.6%. Here are the key Budget highlights for lenders.

Business taxes

The headline rate of corporation tax will reduce by a further 1% to 20% from 1 April 2015, resulting in a single corporation tax rate for the first time since 1973. This decrease is being partially funded by an increase in the bank levy to 0.142%

Anti-avoidance

  • As mentioned in previous speeches, the Chancellor is targeting avoidance and as already announced a general anti-abuse rule will come into effect from the date of Royal Assent to the Finance Bill 2013.
  • The Chancellor also announced retrospective action in respect of two specific stamp duty land tax (SDLT) avoidance schemes. Whilst this may prove to be of limited direct impact, it reaffirms his intentions to crack down on avoidance within this particular sector.
  • A number of targeted anti-avoidance measures were also announced to prevent the sale of tax losses or tax attributes to third parties. There is a real danger that these changes could inadvertently catch genuine commercial transactions where a distressed business is restructured or sold to a third party, such that the tax attributes in certain circumstances may not be available post-transaction. This may directly impact the value that can be realised by lenders on exit or of a business going forward. The measures are effective from 20 March 2013.

Employment issues

  • The Chancellor announced that the Government would be providing the Pensions Regulator with a new objective to support scheme funding proposals for businesses with final salary pension scheme deficits that are compatible with sustainable growth for the sponsoring employer. Whilst the precise wording of the objective will not be confirmed until the spring, this could lead to a more flexible approach to pension scheme restructuring and deficit repair plans. It will be interesting to see how this will be taken into account and the regulator's expertise in enforcing it.
  • The increase in the income tax personal allowance to £10,000 from April 2014, whilst welcome will, assuming the link with the auto enrolment earnings trigger is maintained, reduce the number of employees that will be placed in to their employer's pension scheme.  The impact could be significant given that this is an increase from the current threshold of £8,105.
  • Real time information generally requires employers operating PAYE to report information on employees' pay and deductions before or at the same time as wages are paid. HM Revenue & Customs (HMRC) already appears to have accepted that this major change adds a layer of complexity and as such appears to be trying to only apply a 'light touch' for the first year. The Chancellor also announced a late filing penalty regime for businesses which will apply from April 2014 – this may seem a long time away but will not give employers much time to get their houses in order

Property and construction

  • Two new Help To Buy schemes were announced to get the housing industry and property market moving. Interest free loans of up to 20% of property values on new build homes and further support in the form of government guarantees over lending to buyers of any homes with deposits of between five per cent and 20% will hopefully help to kick-start the construction industry and potentially provide a lifeline for struggling property developers. Both of these measures will apply to homes up to a maximum value of £600,000.
  • This time last year the Chancellor announced a proposed package of measures aimed at residential property, with a value of £2million or more, which is not directly owned by the occupier. An enhanced SDLT rate of 15% was introduced and consultation commenced in relation to bringing such assets within an annual tax based on value and into the UK capital gains tax net. The Government is now pushing ahead with the proposals and they will be enshrined in the Finance Bill 2013. The notable changes from last year's enactments and proposals are genuine developers and rental businesses will be exempted (although it is worth noting that such new businesses have been suffering from the higher SDLT rate throughout the last year) and any capital gains calculation will now have a base value deduction of the market value at April 2013 although any future gain will be taxed at a higher rate of 28%.

Indirect taxes

The 1.89p per litre fuel duty increase due to commence on 1 September 2013 has been cancelled, helping to ease the burden of spiralling fuel costs which is affecting all businesses.

Video summary

Kathryn Hiddleston, head of Grant Thornton's Restructuring Tax and Pensions team, has recorded some of the issues highlighted above in more detail here in this analysis.