The UK Chancellor delivered the UK budget on 3 March 2021 with the objective of setting out the UK road to economic recovery. All countries have had to adapt to the consequences of Covid-19 and its impact on their economies. The UK adopted a three-stage plan: Phase one focused on stopping the spread of the virus and introduced the ‘stay at home’ campaign; Phase two focused on economic support to generate jobs and allow the UK to ‘get back to work’. Now, Phase 3 is focusing on economic recovery by protecting jobs and livelihoods. We set out below the tax changes which will be of interest to Israelis with assets or business interests in the UK.
As the pandemic hit last year, the UK entered its first recession in 11 years. GDP for 2020 as a whole fell by 9.9%, the largest annual fall in 300 years.
Taking into account support for individuals, businesses and public services and capital investment, total UK support for the economy for this year and next year amounts to a record-breaking £407 billion. Speculation was rife as to the potential measures to be included in Budget 2021.
Property - tax holiday extended
Israelis investing in the UK property market will be pleased to hear that the Stamp Duty Land Tax (SDLT - equivalent to purchase tax in Israel) holiday for properties of £500,000 or less will be extended until 30 June 2021. The original deadline was 31 March 2021, but completing contracts on the purchase of properties was difficult whilst the UK remained in lockdown. It is noteworthy that there is an existing 3% SDLT surcharge on the acquisition of a second property (relevant for those who own a property anywhere else in the world). An additional SDLT surcharge of 2% for non-UK residents buying UK residential property will take effect from 1 April 2021. Surprisingly, the Chancellor announced that there will be a tapered SDLT extension until the end of September 2021 - this means that there will be a SDLT holiday for properties of £250,000 or less during this transitional period. Israeli property investors ought to act quickly to make use of these benefits whilst they last.
We also note that recent rumours of changes to the taxation of UK Capital Gains Tax (CGT) proved unfounded, and no changes in this area were announced (other than the freezing of the CGT capital allowance at £12,300 per person until April 2026).
Individuals - personal allowance frozen
The UK personal allowance will increase to £12,570 next year, but it will be frozen at this level until 2026 (as will the higher rate tax threshold of £50,270 for 2021/2022). This is relevant for Israelis with UK income, for example, UK rental income or UK investment income.
UK businesses - corporation tax to rise
Israelis with businesses in the UK may be disappointed to hear that the UK corporation tax will rise. The UK was previously heralded as ‘open to business’ due to its competitive position of having the lowest corporation tax rate in the G7 (currently 19%). However, the increase will be in 2023 once the economy has regained its pre-pandemic peak. The corporation tax rate post 2023 will be 25% but only for businesses with profits from £250,000. Conversely, companies with profits of £50,000 or less will apply a Small Profits Rate at 19%. A taper will apply for those companies with profits between £50,000 and £250,000.
The business rates holiday will also continue to 30 June 2021 and it will be partially available for the remaining 9 months of the tax year (where it will be discounted by 2/3).
The UK also announced a new ‘super-deduction’ tax incentive to promote investment into the UK. This is relevant for companies investing in qualifying plant and machinery, which will benefit from a 130% first-year capital allowance. They will also benefit from a 50% first-year allowance for qualifying special rate assets. Essentially, this means that for every £1 invested, companies will enjoy a tax cut of up to 25p. This will give a boost to manufacturing, construction and utilities firms. The relief will end in April 2023.
Hopes for recovery
The UK Leader of the Opposition accused the UK government of making decisions based on the electoral cycle as opposed to economic strategy. By contrast, the Chancellor maintained that "We will continue doing whatever it takes to support British people and businesses". It would seem that the UK is dangling the carrot until April 2023, at which point the UK hopes to be on the road to economic recovery. At that point, benefits disappear and tax rises come into play.
Israel is yet to deliver her budget. Israel is a world leader in its vaccination roll-out which should speed up economic recovery and put Israel at an advantage. Israel has also spent significant funds in supporting the country during the Covid-19 pandemic and will need to recover the funds in an efficient manner. This is likely to include tax increases and cuts to certain benefits. Israel is in a good position to learn from the proposals put in place by the UK and of course learn from its mistakes. Supporting citizens and businesses financially and rebuilding economically is a difficult balance to strike.
Claire Shelemay, BFP FCA, is the founder and CEO of CrownStone Consulting Ltd., a UK tax boutique in Tel Aviv.
Published by Globes, Israel business news - en.globes.co.il - on March 17, 2021
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