Today saw the Chancellor announce a number of targeted initiatives and tax changes focused on stimulating the economy as the Government seeks to move away from a reactionary approach to the pandemic and begins to focus on the UK’s recovery. The key theme was youth and employment, and many of the measures announced were focused on job creation in sectors such as retail and hospitality, both being large employers of the younger generation.
The key tax changes are as follows:
To repair some of the continuing damage to the hospitality and tourism sectors, a temporary VAT reduction from 20% to 5% has been announced, effective until 12th January 2021. The change is intended to re-invigorate a sector that employs a great deal of individuals and is responsible for a relatively large proportion of the UK’s GDP. Companies will need to swiftly consider the impact of the new VAT rate, in particular on systems, and whilst the reduction will be almost universally welcomed, swift action will be required to implement the changes required.
Stamp Duty Land Tax (SDLT)
The Chancellor recognised the importance of the housing sector in relation to economic growth and the sharp decline in sales, in recent months, due to the pandemic. A change to the residential rates of SDLT had been rumoured and they were duly delivered.
The changes see the extension of the zero rate of SDLT to £500,000 (from £125,000). The revised rates will extend the threshold for first time buyers who previously benefited from an increased threshold of £300,000. The surcharge regime will continue to apply for those acquiring additional properties, but there is now an overall lower rate for those looking to buy residential investment property or holiday homes.
The change in the SDLT residential rates has immediate effect and will last until 31 March 2021.
Those individuals who have exchanged contracts for the purchase of a property but not yet completed their purchase should in most circumstances be able to benefit from the reduced rate of SDLT, as the change is effective from today.
We would also note that there appears to be no change, at this stage, in relation to the additional 2% SDLT charge applying for overseas buyers and it is expected this will still come in to force from April 2021.
For further details on the SDLT changes, please see our Property team’s blog about today’s announcement.
Some additional notes of point were:
The Chancellor has identified that the impact of the cessation of the furlough scheme will be significant. In an attempt to address that impact, a ‘job’s retention bonus’ has been announced, providing employers with a payment of £1,000 where they bring employees back from furlough (subject to certain qualifying criteria). For further details about this, please see our Employment team’s blog about today’s announcement.
Focusing on the younger generation and the creation of jobs, several new initiatives were launched:
- The ‘kickstart’ initiative
- £1,000 employer grants for those taking on new trainees
- £2,000 employer grants for those taking on apprentices
- Increased numbers of careers advisors and resource within job centres.
The Government will provide grants of up to £5,000 (or, £10,000 for lower earning households) for homeowners and landlords seeking to undertake work to improve the energy efficiency of their properties.
We welcome the introduction of a targeted approach and can see the merits of the stimulus package announced in conjunction with tax changes designed to stimulate the flow of money within the economy.
Sean Bannister, Head of Tax at Edwin Coe, had the following comments:-
“There are some reasons to be positive coming away from the Summer Statement and the changes to VAT for the hospitality and tourism sector should be a very real boon as these businesses slowly awaken from their enforced slumber. Whilst the reduced rate of tax will be beneficial, until people feel confident enough to use these services the benefits may be limited, in particular during the period where many city centre workers remain in a ‘work from home’ situation as a result of the government’s guidance.
The changes to SDLT do not, in my view, go far enough. Confidence levels are likely to remain low in a period of significant job insecurity for many people and this temporary reduction, whilst increasing the flow of transactions, is going to have limited benefit in attracting the new capital that is sorely needed from both UK based and overseas investors.”
Overall there are significant economic challenges that must be addressed in the coming years, and the deficit will come in to sharp relief. We would expect national debt to form a substantive part of the autumn economic review and budget given the various public spending initiatives and pledges that have been made, and tax rises in some form or another are almost inevitable. Individuals looking to plan for the expected increases should take action now, as it may be too late to address the position once the landscape has changed.
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