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Summer Budget 2015

Summer Budget 2015
  • United Kingdom
  • Central government


Reaction to the Chancellor's Summer Budget 2015

A radical budget with big surprises, as well as much of that was expected.

A good budget for UK plc, with corporation tax rates to be reduced to 18% by 2020, the rates of VAT, income tax and NIC remaining unchanged and non-dom status being retained (though restricted for those who have been resident in the UK long-term). Theme of incentivising investment in British Industry and the 'Northern Powerhouse' (to be extended to other regions) continues. For further information read here

However, there are radical changes and proposals for individuals, particularly at the higher end of the income bracket. Fairness is the theme, though it may not feel like that to all concerned, with changes to pensions, inheritance tax, non-dom status (including inheritance tax on residential property), management fees, rules on buy-to-let landlords and the tax treatment of dividends. These changes are likely to continue to challenge conventional tax planning.


This continues to be a key focus with the government planning to raise another £5bn from measures and ploughing £750m more resource into doing so. Notably, the original term tax evasion (illegal) is being used in the same breath as tax avoidance (not new) and aggressive tax planning, so the status quo will be much challenged. Read more  

UK corporation tax

The reduction of the mainstream corporation tax rate to 18% by 2020 will be much welcomed and will be an incentive to utilise UK companies. It helps also to take some of the bite out of the anti-avoidance measures introduced in the last Budget such as the diverted profits tax (though admittedly it will not square up on timing).

At a more detailed level, significant changes are being proposed to the corporate tax system, some having been well trailed such as the overhaul of the corporate debt tax code, but also new changes such as the acceleration of corporation tax instalment payments, restrictions on tax relief for goodwill and other targeted loss restriction provisions. The headline rate may be going in the right direction, but stability and certainty remains an issue with the UK corporate tax code. Read more

Taxation of banks and building societies

Banks and building societies will welcome the government’s announcement that they will reduce the bank levy over the next 6 years. Many such institutions questioned the UK’s tax competitiveness as a place to do business and situate their global headquarters. This measure, combined with the government’s decision to reduce corporation tax, will help ensure that the UK remains a key centre of the global banking industry. The government’s decision to introduce a new 8% corporation tax surcharge for the banking sector may, however, cut across some of these benefits. The industry will only be able to assess the financial and operational impact once the detail of the legislation is known. Read more

Investment managers

Just when we thought it was all settled, investment managers' performance fees continue to be under the spotlight. It appears that the conventional structuring around carried interest and other similar planning around performance fees will be attacked and changed.  The rules, which will have effect from today, will effectively abolish the use of the base cost shift and other mechanics, which can, in practice, mean that, while subject to CGT, the effective rate of CGT is below the main rates. Now, the performance fee will be charged to CGT in full.  Indeed the supporting papers appear to indicate that any carry may be subject to CGT regardless of its form. The industry will be looking at this carefully as it could have wide ranging implications and is likely to impact on structuring.

More widely, a consultation has been announced such that the basic premise will be that performance based reward will be treated as income subject to certain exceptions (one of which is intended to be the carried interest). This should be considered with care. Read more


Announcements affecting the insurance sector included a phased hike to insurance premium tax and the extension of the ‘use and enjoyment’ VAT rules.

The government intends to increase the insurance premium tax from 6% to 9.6% with the hike set to take effect from 1 November 2015. The increase will be phased-in for those using the special accounting scheme and a concessionary period running from 1 November 2015 and 29 February 2016 will also be available.

Also of interest to the insurance sector, it was announced that the VAT ‘use and enjoyment’ provisions will apply so that UK repairs under UK insurance contracts will be subject to UK VAT. A wider review of off-shore based avoidance in VAT exempt sectors was also announced. Read more

Buy-to-let landlords

In a very bold, though in not entirely unexpected, move, the finance costs (most notably interest relief on mortgages) for buy-to-let landlords that are deductible in computing tax are to be reduced to the basic rate (20%). This will be phased in over 4 years with the amount available for relief reduced over that period. This will have widespread ramifications for many individuals across the country.  It is likely to affect pricing and potentially might be helpful to the funds industry as it competes to acquire stock in the sector. Read more


The rules on the taxation of dividends are to be changed from April 2016. The dividend tax credit will be abolished and in its place a new Dividend Tax Allowance for the first £5,000 of individuals’ income will be introduced. Generally, the income tax rates applicable to dividend income will be increased by 7.5%. Companies generally and investment funds will be affected indirectly by the changes in this area. Read more  


The industry will be relieved to hear that the government intends to bring in the new seeding relief for PAIFs and co-ownership ACS, and to ensure ACS are treated as tax opaque (with no tax on unit transfers) as was previously announced – subject to resolving outstanding concerns around avoidance. It is assumed that the measures will form part of the Finance Act 2016.

The government is to consult on technical changes to the limited partnership legislation generally to make it more user-friendly for private equity funds.

There are a number of proposals which will be of specific interest to authorised funds and their investors. Read more


The major headline for pensions is the government’s consultation on overhauling the system of pensions tax relief in the UK. The consultation opens the door to the prospect of the current system of tax relief on the way in and paying tax on the way out being turned on its head. This would effectively mean that a pension is taxed in the same way as an ISA. If the government presses ahead with this change, it would have significant implications for pension schemes and providers particularly as it is likely that they would have to ring-fence benefits built up before and after the change. It is also unclear how this would apply in the context of defined benefit schemes and whether tax relief on employer contributions may also be scrapped. If the latter were to happen, it would significantly hit employer support for pensions.

The other key pensions headlines are:

  • the reduction in the annual allowance for those earning over £150,000 from 6 April 2016;
  • confirmation that the government plans to press ahead with the creation of a secondary annuity market;
  • the government’s plan to consult before the summer on options to make the transfer process smoother and quicker, including excessive early exit penalties; and
  • the extension of PensionWise to anyone aged 50 or over. Read more

National Living Wage

The government is to introduce a ‘national living wage’ premium on top of the national minimum wage for workers aged 25 and over from April 2016. The initial premium will be 50 pence. This means that the minimum wage for workers aged 25 and over will go up twice in the next 12 months: on 1 October the standard adult rate of the NMW will increase to £6.70 (from £6.50) and then in April 2016 it will go up again, for those aged 25+, to £7.20. Thereafter, the Low Pay Commission (LPC) will make annual recommendations as to the level at which the premium should be set (and the level of the national minimum wage). However, the government has made it clear that it intends the living wage (ie the NMW combined with the living wage premium) to reach 60% of median earnings by 2020, which should put it at in excess of £9 per hour. This means that the LPC’s hands will be tied somewhat, as it seems the Commission will be restricted to advising on how this can be achieved, rather than weighing up the benefits of the move against the potential costs. Read more  

Eversheds comments

Eversheds comment: Insurers will welcome phased approach to hiking insurance premium tax
Giles Salmond, partner and tax expert, comments on the insurance premium tax hike and VAT provisions announced in today's Budget.

Eversheds comment: UK Pension reform - simpler ways available of incentivising people to save
Francois Barker, head of pensions, comments on changes to the UK pensions system proposed in today's Budget.

Eversheds comment: UK Budget 2015 - Osborne unveils a 'national living wage'
Many of us were left wondering quite what the Conservative Manifesto meant by "we will continue to encourage businesses and other organisations to pay [the living wage] whenever they can afford it". Today that is clearer with the surprise announcement in the Budget that a "Living Wage" will replace the current levels of national minimum wage with the aim it will increase the national minimum wage to as much as £9 per hour in the next few rises". Simon Rice-Birchall, partner at law firm Eversheds, comments...