Legal perspectives on the Budget 2021

In the Chancellor’s first Budget speech last year, made as COVID-19 started to take hold in the UK, Rishi Sunak promised to do “whatever it takes to support the economy”.

As his second Budget is laid out, the focus today is not only on surviving through the remainder of the crisis, but also how the public purse is going to pay for it, and how investment will be encouraged to help offset the mounting debts.

An eye-watering £65bn worth of new measures have been announced today, as the Chancellor unleashes the “full measure of our fiscal firepower” to conserve jobs and limit the ongoing damage to public finances.

Some of our legal experts react to the Budget and how it will affect businesses and individuals in the county and beyond, on the topics of corporate & commercial, employment law, wills, trusts & probate, residential and commercial property.

Corporate & commercial

“Many commentators predicted that Business Asset Disposal Relief (which used to be Entrepreneurs’ Relief) may be in the firing line, but no changes seem to have materialised. In fact, apart from freezing the amount of the annual exemption, capital gains tax has not been mentioned.

Bigger businesses (those that make a profit of more than £250,000 per year) will bear the brunt of an increase in corporation tax rates, which will be hiked from 19% to 25%. There are worries that this could deter investors, but the Chancellor insists that the rate is still comparatively low, and the increase will not come into effect until 2023. Businesses that make a profit of under £50,000 per year (which we’re told makes up nearly three quarters of trading companies) are shielded from the hike and will continue to be taxed on their profits at 19%.

Hard-hit businesses in the hospitality and leisure sectors will be able to claim one-off ‘Restart Grants’ of up to £18k and a Recovery Loan Scheme, available to businesses of all sizes, will give access to loans of up to £10 million.

Investment, particularly in renewable energy, was a big theme in the Chancellor’s speech. Plans include a new UK Infrastructure Bank which is intended to fund up to £40bn worth of green projects in both the public and private sectors, funded through the issue of £15bn of green bonds by the government to enable investors to participate with the objective of ‘net zero carbon emissions by 2050’.

In a further investment boost and to ease the additional tax burden created by the changes to corporation tax, from next month, a new ‘super-deduction’ will be available to enable businesses to reduce their corporation tax bills in they invest in new equipment, encouraging them to keep on spending.”

Chris Wills, partner, corporate & commercial

Business immigration

“We await further details on the proposals, but the immigration system will be reformed to allow highly skilled workers from outside of the UK in the fields of science, research and technology to be able to come and work here without the need for sponsorship. It was also promised that the existing system would be simplified to encourage highly skilled entrepreneurs and tech start-ups to establish themselves in the UK.”

Helen Howes, solicitor, corporate & employment law

Employment law

“The Budget gave us few surprises from an employment law perspective.

• As anticipated, the Coronavirus Job Retention Scheme (CJRS – or ‘furlough’ as it is commonly known) will be extended until the end of September 2021. In the main, the CJRS remains the same, save that from July 2021, businesses will be asked for a 10% contribution towards the hours not worked by employees, rising to a 20% continuation in August and September 2021 as the economy recovers.
• The National Living Wage will be increased from £8.72 to £8.91 from April 2021 – a 2.2% rise and will be for people aged 23 and over.

From a PAYE perspective:

• There will be no rise in the rate of National Insurance contributions, or Income Tax.
• The Income Tax threshold for paying the basic rate will rise from £12,500 to £12,570 in April 2021, and will be frozen to 2026
• The higher rate Income Tax threshold will rise from £50,000 to £50,270 in April 2021, and will be frozen to 2026.
• HMRC will be setting up a new ‘task force’ with the specific role of investigating tax fraud, which will, of course, include furlough fraud!

All in all, it’s fairly positive news for employers as the support to pay employees’ salaries continues for another 6 months, although this will be gradually reduced and businesses will be expected to make an increased contribution from July onwards.

The increased tax thresholds are good news for employees in the short term, but the 5-year freeze (until April 2026) means that the benefits will be short lived for those who receive pay rises in the coming years. The thresholds are not due to increase until 2026, meaning that employees may find themselves in in a new tax bracket, and having to pay more than they would usually anticipate.”

Jenny Hawrot, senior associate solicitor, employment law

Wills, trusts & probate

“Many Budget predictions put tax hikes on the cards, especially for Capital Gains Tax (CGT) but somewhat surprisingly, the Chancellor was quiet on this subject. The allowances for CGT and Inheritance Tax remain the same, as does the pensions lifetime allowance. This means it’s an opportune time for individuals to think about their longer-term financial planning.”

Simon Cook, partner, wills, trusts & probate

Residential property

“As anticipated, the Stamp Duty Land Tax (SDLT) holiday has been extended until 30 June. This is great news for those who have already started the legal process of moving (i.e. those who have found a property to buy, or are selling a property, but have yet to complete). The Chancellor acknowledged the sheer volume of transactions that would have missed out on the Stamp Duty Land Tax (SDLT) holiday had it ended as originally planned this month.

Movers and property professionals are still likely to feel the pressure, however. The surge in the number of transactions and demand for services like surveying and conveyancing means that buyers who find a property now may still be cutting it fine if they wish to benefit from the highest nil-rate band of the SDLT holiday.

To offset this ‘cliff-edge’ and smooth the transition after June, the nil rate band will be tapered; it will be set at £250k from then until the end of September, returning to its pre-COVID level of £125,000 on 1 October.

Arguably, those already on the ladder benefit from the SDLT holiday extension more than first-time buyers, who don’t have to pay SDLT anyway on purchases up to £300k. The increased demand due to the SDLT holiday may, some have argued, be further pricing first-time buyers out of the market.

To “turn generation rent into generation buy” and give a boost to aspiring first-time buyers, the Chancellor has announced a mortgage guarantee scheme, aimed at removing the barrier of a high deposit for those wanting to get on the property ladder. The 95% mortgages will be available to those looking to buy property under £600,000 and many big-name lenders are already on board.

This will, again, increase demand and perhaps push prices up even further. Buyers may also find themselves in a precarious position should interest rates rise later down the line.”

Suzanne O’Riordan, partner (non-solicitor), residential property

Commercial property

“Those who have had to close their commercial premises will welcome the extension of the business rates holiday up to the end of June. After June, there will be a gradual, phased return to payment of rates as businesses hopefully begin to re-open their doors. Discounts of up to two thirds will be available during this tapered period, up to a value of £2 million. A “lower cap” will apply for businesses who haven’t had to close during the pandemic.

The business rates holiday extension will no doubt come as welcome news and a boost for the retail, hospitality and leisure sectors, in particular.”

Alasdair Garbutt, partner, commercial property

We’re here to help

If you have any questions or legal queries around the implications of the Budget, we’re here to help so please get in touch.