The UK’s 2016 budget was announced on Wednesday 16 March 2016. Although we are waiting for detailed legislation for most of the tax-related announcements, below is a brief summary of some tax points which have caught our attention.

Capital gains tax (CGT) rates for individuals have been reduced from 28% to 18% (for higher and additional rate taxpayers) for gains “accruing” on or after 6 April 2016. But there are two important exceptions: gains on residential property to which the principal private residence relief does not apply and “carried interest”, both of which will continue to be taxed at 28%. In the latter case we assume this relates to the new charge to CGT introduced in July last year, although this is by no means clear and it will be necessary to see the detail of this legislation as well as the expected “income-based carried interest” legislation to see how this fits into the new landscape for carried interest taxation. We anticipate both sets of legislation when the Finance Bill is published at the end of next week. Another important point which the legislation should clarify is whether this is a simple rate change for gains on disposals on or after 6 April 2016 (which seems to be the overall intention) or whether there is some kind of apportionment between gains accruing before 6 April and those accruing after (which could be inferred from some of the specific terminology used in the announcement), and if so how will that apportionment work.

There were a couple of other important CGT announcements for individuals (one good, one not so good). First, CGT entrepreneurs relief will be extended to “long-term” external investors for shares issued on or after 17 March 2016 which are (broadly) held for at least three years. Second, a £100,000 lifetime cap on gains which are exempt from CGT under the Employee Shareholder Status (ESS) rules is being introduced. Gains on shares issued under Employee Shareholder Agreements entered into from midnight on 16 March 2016 will not be exempt to the extent they exceed this new £100,000 lifetime limit.

For UK companies, the headline-grabber is that corporation tax rates are coming down to 17% in 2020. The government had already announced a reduction in the main rate of corporation tax from 20% to 19% for the financial years beginning 1 April 2017, 1 April 2018 and 1 April 2019 and to 18% for the financial year beginning 1 April 2020. Today’s announcement reduces the rate for financial year beginning 2020 further to 17%.

Behind that headline lie various other corporation tax changes. In particular it was announced that corporation tax loss relief will be reformed with effect from 1 April 2017. In short, the intention is to create more flexibility to relieve losses by allowing group relief for carried forward losses and enabling carried forward losses to be set against any profits rather than being restricted to certain types of income. But the sting in the tail is that carried forward losses will only be able to be offset against 50% of profits for profits in excess of £5 million.

Another important corporation tax development is the reform to corporate debt and deductibility. In response to the OECD’s BEPS project, a new restriction on interest deductibility will apply from April 2017. As yet there is little detail, but it has been confirmed that a new fixed rate rule will restrict corporation tax deductions for net interest expense to 30% of a group’s UK EBITDA, with a group ratio rule based on net interest to EBITDA ratio for the worldwide group. It appears that the new rules will only apply where the group has at least £2 million of UK net interest expense. The current worldwide debt cap legislation will be repealed. As always the devil will be in the detail, and we await the draft legislation.

If you would like to discuss any of these proposed changes, please contact Robert Gaut or Catherine Sear, tax partners in our London office, or your usual Proskauer contact.