Tag: Budget

Wandisco Update and Budget Postscript

I received an email yesterday on the subject of Wandisco (WAND). It was from someone using a fictitious name and an invalid email address so you can judge for yourself how accurate this is likely to be. This is what it said: “The inside scoop at WanDisco is that the European Sales Director has done a total number on them. Multiple huge sales reported, complete with purchase orders (which they now suspect may have been faked). Such little financial governance from the board that while they were lauding this guy as an amazing success, no one seemed to notice that the money hadn’t actually arrived. How out of control must a company be to not notice millions of bucks missing from the accounts?”

Is that credible? I don’t think so. See my previous comments in this blog post: https://roliscon.blog/2023/03/14/4704/

Were these “purchase orders” or simply “letters of intent”? In such a small company it is certainly incredible that the CEO and CFO were not familiar with the details of these orders and were not monitoring the likely cash flows. My previous comments are still relevant.

As regards the budget, Labour are apparently unhappy with the dropping of the lifetime pension allowance and will reverse it given the chance. This was always an iniquitous piece of tax legislation, effectively taxing money at high rates that was previously saved by prudent employees. The £1 million lifetime allowance was not enough to provide a comfortable lifestyle in retirement for previous high-earners. What guaranteed interest rate could they achieve? An annuity of £1 million would only likely mean an income of £60,000 p.a. for life which with inflation rapidly eroding the value is not a great proposition.

For a senior medical consultant working for the NHS the low lifetime allowance was certainly a great incentive to retire early to avoid breaching the £1 million lifetime allowance.

But another complaint is that the scrapping of the lifetime allowance and increase in the annual allowance to £60,000 will enable people to avoid Inheritance Tax. And why not? Inheritance tax is a dubious tax to start with as it taxes money previously taxed as income – effectively double taxation. It’s a tax based more on the principle of screwing as much as tolerable from personal savings rather than an equitable scheme to relieve people of what they can afford to contribute.

The whole personal taxation system needs reforming to make it more rational and simpler. There are so many loopholes and complications that making simple changes can lead to unintended consequences as seen with the latest changes.

The lifetime allowance was introduced to prevent the abuse of high tax relief on pension contributions. Scrapping the limit seems to be an ill-thought through reaction to problems in the NHS. The Labour Party could be right in that respect.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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The Budget – Not Much in it for Investors

Jeremy Hunt’s first budget was a sober affair. No fireworks and little rhetoric which is as it should be. There was very little in it for private investors unless you have children or are still putting money into a pension.

The main points to note are that while tax allowances are still frozen, the £1.07 million pension cap is being dropped and the yearly allowance increased to £60,000. These should help highly paid folks such as medical consultants. The ISA allowance will remain at £20,000 for another year.

Fuel duty will remain frozen and the energy price cap will be extended for another 3 months.

Inflation is forecast to fall to 2.9% by the end of 2023 and we will avoid a recession this year after all. This should boost the stock market but hasn’t so far. Perhaps like me investors don’t believe that inflation will fall that rapidly because once it is entrenched and employees demand more in a spiral then it is difficult to stop.

As with all budgets there is lots of tinkering with grants for this that and the other where the Chancellor claims to be responding to public needs but it’s all virtue signalling and mainly a waste of time. For example £200 million to fix pot holes – the Chancellor clearly has no idea how much they cost to repair and the size of the backlog!

At least that’s my view.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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It’s a Champagne Budget

It’s a champagne budget – or at least one to celebrate for investors as there are no really negative changes in it that were widely rumoured. At least that is apart from the rise in dividend taxes and freezing of allowances previously announced.

Here’s a list of the key points:

  • The National Living Wage is being increased.
  • The Government is substantially increasing funding for R&D.
  • The bank corporation tax surcharge is being reduced.
  • There will be some relief for business rates.
  • R&D tax relief will be focussed on domestic expenditure.
  • There will be more investment in tech skills and in schools.
  • Alcohol duties will be reformed and simplified with lower rates on lower alcohol products – champagne and beer will be cheaper.
  • Proposed rises in fuel duty are cancelled.
  • There will be minor changes to the taxation of REITs (details not yet clear but probably positive for investors) and there will be a levy on property developers to finance a fund to remove dangerous cladding.
  • The economy is now expected to grow by 6.5% this year (up from 4%) hence the generally positive tone of Rishi Sunak’s speech and new spending commitments.
  • Borrowing as a percentage of GDP is forecast to fall from 7.9% this year to 3.3% next, then 2.4%, 1.7%, 1.7% and 1.5% in the following years.

Comments:

This is generally a sensible budget with no abrupt changes in taxation, which are always to be deplored.

The emphasis on more education spending is surely wise, and on the NHS of course although whether the extra money will be wisely used remains to be seen.

Cancelling the rise in fuel duty may please some car drivers but it does not seem consistent with the aim to reduce carbon emissions and certainly will not help reduce congestion on our roads. Is this a two fingered gesture to Insulate Britain protestors who were active again this morning? But more prisons are being build to hold them if the courts put them away for a stretch.

It does not look like there will be any big impacts on particular sectors. The share prices of REITs have risen this afternoon so the changes may be positive but the rise in the National Living Wage will hit large employers such as retail store chains. There may be some benefits to large banks in the reduction in the bank surcharge on corporation tax but that will be offset by the general rise in corporation tax previously announced.

The changes in alcohol duties are a welcome simplification and may be of some benefit to pubs while encouraging healthier drinking. But it might negatively impact wine and spirits producers.

The UK stock market has not reacted significantly to these announcements although gilt prices rose on anticipated reductions in Government borrowing.   

More details are present in this document: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1028813/Budget_AB2021_Print.pdf

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Chancellor’s Budget Speech – Positive for Business

I listened to Rishi Sunak’s budget speech today and here is a summary of some parts of it with some comments from me.

He said that £280 billion of support had been provided, but the damage to our economy despite this has been acute. However our response to the coronavirus epidemic is working. Employment support schemes are being extended and business rates holidays also. The OBR is now forecasting a swifter recovery but the economy won’t be back to normal until the middle of next year. Unemployment is expected to rise to 6.5% but that is less than previously forecast.

There will be another £65 billion of support for the economy when we have borrowed £355 billion this year which will be a record amount.

The stamp duty holiday is extended to September. That should please my oldest son as he is trying to move house at present and delays are happening in the chain because of local authorities not responding to inquiries. There will also be a new mortgage guarantee scheme which as Keir Starmer pointed out may simply encourage a rise in house prices – OK if you already have one but not otherwise. Fuel duty will be frozen as will beer, wine and spirit duties.

Now the bad news: personal allowance tax thresholds will be frozen at the end of the next tax year until April 2026. That effectively implies a rise in tax equivalent to inflation over that period. Inheritance tax thresholds will be maintained at their current levels until April 2026 and the adult ISA annual subscription limit for 2021-22 will remain unchanged at £20,000. There is no mention of changes to capital gains tax as widely rumoured and the pension Lifetime Allowance will be maintained at its current level of £1,073,100 until April 2026 when it really should be increased to match inflation (high earners already have problems with the current limit).

Corporation tax will rise to 25%, but there will be a taper for larger companies. Only 10% of companies will pay a higher rate. Comment: that will still be a competitive rate.

The Chancellor said we need an investment led recovery. Therefore for the next 2 years companies can reduce their tax bill by 130% of the cost of capital expenditure. This is the biggest business tax cut in history he claimed.

There will be a new UK infrastructure bank and a new handout for small businesses to fund IT investment and obtain management support (see https://helptogrow.campaign.gov.uk/ for details). He also mentioned a review of R&D tax reliefs which are quite generous at present. It is planned to cap the amount of SME payable R&D tax credit that a business can receive in any one year at £20,000 (plus three times the company’s total PAYE and NICs liability), but a review is also mentioned.

There are a number of hand-outs for greening of the economy, as one might expect, but there are also more hand-outs to protect jobs and to support Covid-19 vaccination roll-out and research projects.

The FCA will be consulting on Lord Hill’s review to encourage companies to list in UK markets.

There will be more Freeports with 8 locations already identified.

In summary, this budget should be good for business but small software companies may be concerned about the changes to R&D tax credits.

More details of the Chancellors speech here: https://www.gov.uk/government/news/budget-2021-sets-path-for-recovery

Postscript: Reaction to yesterday’s budget was generally negative, but nobody likes higher taxes. The general view is that the Chancellor has just kicked the bucket down the road. More borrowing in the short term to finance the recovery and keep people in employment, but much higher taxes later. I think the budget is a reasonable attempt to keep the economy afloat and could have been a lot more damaging for business if he had taken a tougher line.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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No Budget Surprises from Rishi Sunak

Budget box 3

Chancellor Rishi Sunak just delivered his first budget speech. Bearing in mind how short a time he has had in the job, it’s perhaps not odd that there are no great surprises or revolutions in it.

There are a number of short term measures to counter the economic impact of the coronavirus epidemic on top of the recently announced cut in bank base rate from 0.75% to 0.25% which is surely more of a political gesture than anything because such changes take time to have any impact on the real economy.

There will be a long-term review of business rates but there will be short-term relief for retail and leisure businesses to counter the epidemic impact. The Chancellor is also committing £175 billion to improve economic growth.

The National Insurance threshold will be raised to help the low paid and the planned increase in spirit duty has been cancelled. Fuel duty will remain frozen, when many people expected it to be raised. However red diesel tax relief will be abolished for most sectors other than farmers (it’s news to me that anyone else could use it legally).

Entrepreneurs tax relief will be reformed as widely forecast as it costs the exchequer £2 billion. The lifetime limit will be reduced from £10 million to £1 million. Will that deter entrepreneurs from setting up new businesses? I doubt it.

Twenty-two thousand civil servants will be moved out of London with new Treasury offices in the regions. That will come as a shock to many. Will the Chancellor come under attack from his civil servants like Priti Patel one wonders? But it is surely a positive move to offset the excessive London-centric nature of the economy and the pressure on housing in the South-East.

Some £27 billion will be invested in the strategic road network, including on the A303 that passes Stonehenge.

VAT on digital publications will be abolished so you’ll be able to buy my book “Business Perspective Investing” even cheaper from Amazon – but it’s damn cheap already so I think this may have limited impact except to some educational publishers. It is sensible reform though to align it with paper books.

There is more funding for housing which may help housebuilders and their suppliers and a more general reform of the planning system is forecast. There will be a stamp duty surcharge though for non-UK residents which might affect expensive homes in London but that was widely tipped as something the Chancellor was expected to implement.

For those only aspiring to afford such homes, HMRC is being given more funding to tackle tax avoidance. But the pension tax relief taper relief limit will be raised to £200,000 which may assist many high earners such as NHS consultants. More money is also being given to the NHS although it is not clear whether that and the promise of 40 new hospitals were new commitments or the old ones rehashed.

A closer study of the red book which covers the budget details is required to see if there are any surprises in the small print (see https://www.gov.uk/government/topical-events/budget-2020 ).

Postscript: One announcement snuck in behind the budget is a consultation on changes to the calculation of RPI by the UK Statistics Authority – see https://www.statisticsauthority.gov.uk/consultation-on-the-reform-to-retail-prices-index-rpi-methodology-2/ .

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Budget Summary – Austerity Coming to an End

Philip Hammond’s budget today can be summarised as:

  • More money for the NHS.
  • More money for the MOD.
  • Money for schools.
  • More money to fix potholes.
  • More money for housing.
  • More money for the Universal Credit scheme.

Yes “austerity” is being relaxed. Changes to taxation are relatively minor, but there will be a new tax on “digital platforms” which is clearly aimed at large companies such as Facebook and Alphabet (Google) who generate large revenues from their operations in the UK but pay very little tax on the resulting profits. There will also be a new tax on plastic packaging (comment: that could have been tougher if the problem of plastic pollution is to be tackled). These new taxes may be at relatively low rates initially but once a new tax regime is in place, the rates tend to go up if history is any guide.

Fuel duty is frozen, beer and cider duty are frozen, spirits duty is frozen but wine duty will rise to match the increase in the cost of living. Tobacco duty will rise also.

There will be a new Railcard for the 26-30 age group to help the millenials.

Personal income tax allowances will rise in April 2019 – £50,000 for higher rate taxpayers. And capital gains tax allowance will rise to £12,000.

All the suggestions about changes to pension tax relief, inheritance tax and AIM tax advantages seem to have been ignored, so there is little to dislike about this budget for stock market investors.

In summary a confident performance from Mr Hammond with an avoidance of unnecessary changes to taxation which helps with longer term planning.

More information available from the Treasury here: https://www.gov.uk/government/news/budget-2018-24-things-you-need-to-know

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Budget Feedback, the Patient Capital Review and Productivity

My last post was on the Chancellors Budget which was written quickly but seems to have covered most of the important points. Perhaps one significant item missed was the additional liability of foreign investors for capital gains tax on property sales, although institutional investors may be exempt. This might have some impact but as the details are not yet clear, it remains to be seen what.

Otherwise the media feedback on the budget was generally positive although there was a big emphasis on the poor economic forecast for growth that the Chancellor announced. The OBR has substantially reduced growth forecasts which is one reason why debt will not be falling as quickly as previously indicated and future tax revenues will likewise be lower. Part of the problem is a failure to improve productivity. This also means that average wages in real terms may not grow as expected.

Why did I not comment on this? Because firstly economic forecasts (the OBR or anyone else’s) are notoriously unreliable, and secondly it makes little difference to most UK investors. It might suggest it would be wiser to invest more in overseas companies than UK ones, but in reality many UK companies have major revenues and profits from abroad. In any case, a lot of investors have already hedged their portfolios against the possible damage of a “hard Brexit” by adjusting their portfolios somewhat.

My experience is that investing based on country economic forecasts is very questionable. Good companies do well irrespective of the state of the general economy.

Patient Capital Review

On Budget day the Government (HM Treasury) also published their consultation response to the “Patient Capital Review” – or “Financing Growth in Innovative Firms” as it is officially called. You can find it on the internet. This review was aimed to review incentives to invest in early stage companies with a view to promoting more investment in such companies as part of the attempt to improve productivity in the UK economy. It potentially had significant impacts for investors – for example on the EIS and VCT tax reliefs. What follows is an attempt to bring out the key points:

The review considered not just the tax incentives, and whether they were effective, but whether more direct investment (supported directly or indirectly by the Government) should be undertaken. They got more than 200 written responses to the original consultation on this subject (see mine here: http://www.roliscon.com/Roliscon-Response-to-Financing-Growth-in-Innovative-Firms.pdf ), plus some on-line responses and they also used a panel of industry experts.

Although they have not published all the responses or broken them down in detail, one gets the impression that most respondents considered that the VCT/EIS regime was generally effective in stimulating investment in early stage companies and that there were few abuses. But the Treasury had expressed concern about some of the investments made in EIS/VCT companies which were often focussed more on “asset preservation” than in funding new growing businesses. So the rules are being tightened in that regard – see below.

A personal note: having invested in two EIS schemes that promoted country pubs the asset preservation capability might have made for a good sales pitch by the promoters but they subsequently turned out to be very poor investments even after the generous EIS tax reliefs. One is being wound up with the assets being sold for much less than purchased while the other one only made any money after it turned into a bailiff business subsequent to a shareholder revolt. The Government’s policy of ensuring a focus on “riskier” investments might actually be good for the investors as well as the economy! It will avoid inexperienced investors getting sucked into dubious investments by sharp promoters who can make even lemons sound attractive because of the generous tax reliefs.

On the support for new investment front, the Government is taking these steps:

  • Establishing a new £2.5 billion Investment Fund incubated in the British Business Bank with the intention to float or sell once it has established a sufficient track record. By co-investing with the private sector, a total of £7.5 billion of investment will be supported.
  • Significantly expanding the support that innovative knowledge-intensive companies can receive through the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) while introducing a test to reduce the scope for and redirect low-risk investment, together unlocking over £7 billion of new investment in high-growth firms through EIS and VCTs.
  • Investing in a series of private sector fund of funds of scale. The British Business Bank will seed the first wave of investment with up to £500m, unlocking double its investment in private capital. Up to three waves will be launched, attracting a total of up to a total of £4 billion of investment.
  • Backing first-time and emerging fund managers through the British Business Bank’s established Enterprise Capital Fund programme, supporting at least £1.5 billion of new investment.
  • Backing overseas investment in UK venture capital through the Department for International Trade, expected to drive £1 billion of investment.
  • Launching a National Security Strategic Investment Fund of up to £85m to invest in advanced technologies that contribute to our national security mission.

In addition the Pensions Regulator will clarify guidance on inclusion of venture capital, infrastructure and other illiquid assets in portfolios and HM Treasury will encourage defined contribution pension savers to invest in such assets.

Entrepreneur’s Relief rules will be changed to reduce the disincentive to accept more outside investment, and the Government will also look at a guarantee programme modelled on the US “Small Business Investment Company”.

They will also work with the Intellectual Property Office on overcoming the barriers to high growth in the creative and digital sector. What this implies is not clear. Does that mean they are suggesting introducing software patents perhaps?

Several gaps in the investment market for early stage or follow-on funding were identified but one telling comment from the expert panel was this: “…the UK venture capital market has historically delivered poor returns; this results in less capital being attracted to the asset class, which in turn results in less talent being attracted to the patient capital sector; this then depresses returns, completing the circle”. But they did suggest this could be fixed.

There apparently were many comments on the importance of the EIS/SEIS schemes for funding innovative businesses – for example: “EIS and SEIS incentives have been particularly effective at stimulating investment and are extremely valuable to bioscience investors”. But I suspect that has been of more benefit to companies raising capital than it has been in terms of achieving long-term positive returns for investors. It is a pity not more evidence was provided on that.

The Treasury response is to double the annual investment limit to £2 million for EIS investors, so long as any amount over £1 million is invested in knowledge-intensive companies. Also the annual investment limit for knowledge-intensive firms will be doubled from £5 million to £10 million for EIS and VCT companies, and a new fund structure for such firms will be consulted upon. There will also be more flexibility on how the “age limit” is applied for companies applying. Question: what is a knowledge-intensive company? The answer is not given in the Treasury’s response.

A “principles-based” test will be introduced for all tax-advantaged venture capital schemes. This will ensure that the schemes are focussed “towards investment in companies seeking investment for long-term growth and development”. Tax motivated investments where the tax relief provides most of the returns to investors will be ruled out in future. There must be “a risk to capital” for firms to qualify. Detailed guidance will be published on this and there are some examples given in the response document, although it is far from clear from those what the rules might be. Comment: as this is going to be “principle-based” rather than based on specific rules it looks like a case of the Treasury saying “we can’t say what is objectionable now but we will know when we see it”. This might create a lot of uncertainty among VCT and EIS fund managers and company advisors.

The rules for VCT investments will also be tightened up with the following changes:

  • from 6 April 2018 certain historic rules that provide more favourable conditions for some VCTs (“grandfathered” provisions) will be removed
  • from 6 April 2018, VCTs will be required to invest at least 30% of funds raised in qualifying holdings within 12 months after the end of the accounting period
  • from Royal Assent of the Finance Bill, a new-anti abuse rule will be introduced to prevent loans being used to preserve and return equity capital to investors. Loans will be have to be unsecured and will be assessed on a principled basis. Safe harbour rules will provide certainty to VCTs using debt investments that return no more than 10% on average over a five year period
  • with effect on or after 6 April 2019 the percentage of funds VCTs must hold in qualifying holdings will increase to 80% from 70%
  • with effect on or after 6 April 2019 the period VCTs have to reinvest gains will be doubled from 6 months to 12 months

Comment: these changes would not seem to cause great difficulties for VCT managers and should not affect the returns to investors. Some of the changes might be helpful. The feedback from VCT managers is awaited.

But the income and capital gains tax reliefs for investors are basically unchanged, as is Business Property Relief on “unlisted” companies such as AIM stocks which were both mooted as being under consideration. As I wrote in my previous blog post on the budget, at least the Chancellor and the Treasury seem to have minimised the changes which is always helpful for investors. Being unable to plan many years ahead because of taxation rules and levels continually changing has been a major problem for investors. So on that score alone, the budget is to be welcomed.

As regards Entrepreneurs’ Relief, the government is concerned that the qualifying rules of Entrepreneurs’ Relief should encourage long-term business growth. The rules will therefore be changed to ensure that entrepreneurs are not discouraged from seeking external investment through the dilution of their shareholding. This will take the form of allowing individuals to elect to be treated as disposing of and reacquiring their shares at the then market-value. The government will consult on the technical detail. Comment: this seems to be yet another complication to taxation rules which is unfortunate.

Productivity

These changes to the tax incentivised schemes, and the Government investment in funds, may assist to improve the productivity of the UK population by focussing on high growth technology businesses. One cannot improve productivity by employing more coffee bar baristas, and such jobs are always likely to remain low paid. The budget change to increase the National Living Wage (the Minimum Wage) from next April will also promote improvement in productivity as it will make employers consider investment in automation rather than simply employing more staff.

There is also investment in infrastructure committed to in the budget, which might assist. Is it not the case that productivity is reduced because of the distances and time wasted in commuting in the South-East of England? The transport network (road or rail) is truly abysmal in the UK and has been getting worse. This means that folks are tired before they even get into work. The encouragement of commuting by cycle also surely results in tired and unproductive staff. It might be fashionable, and good for their health in the long term, but is it good for the economy? Unfortunately the housing market has been made more inflexible in recent years in some respects so people cannot move nearer to their workplace. Stamp duty increases have deterred moving to reduce travel costs, and higher house prices in some areas have not helped. For example, this writer recently met someone who lives in Southampton when his employer was based in Oxford – he could not afford to move. The reduction in stamp duty for first-time buyers in the Budget is not going to make a big difference to these problems.

So overall the Budget changes are more “nudges” in the right direction to improve the economy, while not being revolutionary. The Government’s tax base is not undermined and investors tax planning not significantly affected, so Philip Hammond may find he is in the job longer than expected after all.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Chancellor’s Budget and How It Affects You

What follows is a summary of Chancellor Philip Hammond’s Budget speech today, and the impact of the tax changes. Private investors were particularly concerned about the impact of tax reliefs in the VCT/EIS schemes following the Patient Capital Review but these are in fact relatively minor (see end of document).

This is a summary of the key points he announced:

  • The Chancellor said we are on the brink of a technological revolution, we must embrace it. Britain is at the forefront, but we must invest to secure it.
  • Regrettably our productivity performance remains disappointing.
  • Our debt interest is too high. OBR expects debt to peak this year and fall thereafter.
  • He maintained his commitment to fiscal responsibility but will use the headroom to prepare Britain for the future.
  • The strategy is to raise productivity and employment in all sectors of the economy. A white paper will be issued on this within a few days.
  • Following the Patient Capital Review an action plan will be published which commits to more funding of the British Business Bank, including £2.5 billion of Government seed funding (to co-invest with private firms). But there will be some restrictions on EIS tax relief (see later).
  • First year VED on cars that do not meet the latest emission standards will be increased. However there will be no “benefit in kind” from the provision of free electric charging of vehicles at work.
  • There will be more support for maths teaching including specialist schools. More maths for everyone! And there will be a tripling in the number of computing teachers. There will also be more “distance learning” support.
  • Universal credits will be paid more quickly and there will be easier access to advances to overcome complaints in this area.
  • The National Living Wage will rise by 4.4% from April (Comment: this will obviously impact employers of large numbers of low paid staff such as retailers and hospitality firms).
  • The Personal Tax Allowance will rise to £11,850 from April and the Higher Rate Threshold will also increase to £46,300, in line with inflation.
  • Taxes on beer, wine and spirits will be frozen (apart from cheap cider). A Merry Christmas to all. Fuel duty will also be frozen.
  • An additional £10 billion of capital investment will go into NHS frontline services. That includes £7.5 billion this year and next, plus there will be a review of staff pay.
  • There will be more attacks on tax evasion. In addition, the anomaly of the indexation of capital gains for companies (but not individuals) will be removed.
  • The VAT registration threshold will be reviewed but it is not intended to amend it from the current £85,000 level for at least two years.
  • There will be amendments to business rates to help smaller businesses.
  • There will be a review of international taxation arrangements. Royalties paid to low tax countries will be taxed and on-line marketplaces will be jointly liable for the sellers VAT.
  • Councils will have powers to tax empty properties, plus the Government will look at barriers to long tenancy agreements.
  • The Chancellor said house prices are getting out of reach. Successive Governments over decades have failed to meet the demand for housing (comment: surely nobody can dispute that). He committed £45 billion in capital and loans to boost the supply of skills, resources and building land. Plus there will be reforms of the planning process/laws. There will also be an inquiry into why plots with planning approval are not built.
  • Seven new town developments are planned with 1 million new homes in the Cambridge, Milton Keynes, Oxford corridor. The plan is to build 300,000 new homes per year.
  • Stamp duty will be abolished on the homes up to £300,000 in price for first time buyers and the same allowance available for homes up to £500,000 in price.

More details on taxation changes.

Changes additional to those mentioned above include:

  • The IR35 rules allowing contractors to avoid being taxed as employees may be tightened further (to follow through changes in the public sector to the private sector).
  • There will be a consultation on reform of the taxation of trusts to make them simpler, fairer and more transparent (Comment: surely a positive move).
  • Individuals operating property businesses will have the option of using mileage rates to simplify their tax affairs.
  • ISA subscription rates will remain unchanged (£20,000 for 2018-2019).
  • Lifetime allowance for pensions will be increased by inflation to £1,030,000.
  • Carried interest transitional arrangements will be removed with immediate effect (so pity those asset managers who will now pay full capital gains tax rates).
  • The restriction of relief on VCT investments sold within six months where VCTs merge will no longer apply to mergers more than two years after the subscription or where they do so only for commercial reasons. This will avoid a trap that investors can accidentally fall into.
  • VCT and EIS schemes tax relief will need to ensure they are investing in assets subject to “real risk” rather than those simply aiming for “capital preservation”. Certain “grandfathering” provisions that enable VCTs to invest funds under older rules will be removed from April 2018.
  • VCTs will need to invest 30% of new funds raised to be invested within 12 months.
  • VCTs will need to have 80% of their funds as “qualifying” investments (currently 70%) from April 2019, but they will have 12 months to reinvest the proceeds of disposals (currently 6 months). This presumably might enable them to smooth dividend payments somewhat when currently they often have to pay out the result of realisations rapidly.
  • EIS rules will double the limit on the amount an individual can subscribe in a year to £2 million, but any amount over £1 million must go into “knowledge intensive” companies. Comment: I await some simple definition of what they might be. Such companies will also have the limit on annual EIS and VCT investments raised to £10 million

I have only included what seem to be the most significant changes in the above. In general there seems to be a policy to avoid rapid and abrupt changes to taxation (which thwart people from planning their tax affairs) which is to be welcomed.

Whether the VCT and EIS tax changes will have significant impact on those vehicles remains to be seen although some of the changes had already been indicated and threats of major changes that had been rumoured seem to have been avoided. This writer expects that the managers of those funds will adapt as they have already been doing. Encouraging investment in riskier assets may increase the risk profile of those companies but might also increase the returns and a large size and diverse portfolio will provide a hedge against the risks.

The full report on the Patient Capital Review consultation has also been published and is available here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/661398/Patient_Capital_Review_Consultation_response_web.pdf

I may provide further comments on that after reading.

In summary I view this budget positively with no unexpected surprises or likely perverse outcomes from unintended consequences we have seen from the surprises announced by previous Chancellors. But it would be interesting to get readers comments – please add.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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