Podcast  

Budget 2021: The big freeze?

Budget 2021: The big freeze?

The changes to corporation tax in this week's Budget will have a "significant" impact on those seeking to take money out of a business, according to the latest edition of the FTAdviser Podcast. 

Speaking on the podcast, Chris Etherington, private client partner at RSM, said the changes would make it much less tax efficient to take money out of a business through a dividend.

In the Budget on Wednesday chancellor of the exchequer Rishi Sunak said corporation tax would rise from 19 per cent to 25 per cent in April 2023. 

Article continues after advert

Etherington said this was a particular issue as investors were increasingly putting their investments into company structures - for example buy-to-let landlords.

He said: "Ordinarily a person who owns their own business has probably been thinking dividends are the best route for taking money out of my business - other than pensions of course.

"But if you want cash into your own hands immediately then dividends has been the tried and trusted route. The thing to take into account is that if you own your own business you can't just take into account personal income tax rates, you've got to take into account corporation tax rates - it's your business at the end of the day.

"With dividends you don't get a deduction from corporation tax so the fact it will be going up to such a substantial extent will have a material impact on deciding which route to go down. Does it make it as tax effective as it was for paying yourself a dividend? Actually I suspect if you tot it up in the round I suspect you are much closer now between just a normal salary or bonus versus a dividend."

Claire Trott, head of pensions strategy at Technical Connection, said the pensions route for taking money out of a company was always likely to be the most tax efficient.

But she added: "As someone said to me, you can't buy groceries with a pension until you're 55 so that does cause a bit of a problem."

Trott said the issue would remain a "balancing act", taking money out using the "different means with the right proportions" but she acknowledged the change to corporation tax would make this harder.

The panel also included Kevin Roberts, director of the Legal & General Mortgage Club, who discussed the continued stamp duty holiday and the mortgage guarantee scheme which is aimed at getting more lenders back into the high loan-to-value market.

He said: "I'm not sure that a guarantee scheme on its own will help the resentful renters, all those people who want to get onto the housing ladder, because you have got affordability as well.

"It is not just the deposit. It is affordability. There are many people renting at the moment who can afford the mortgage payments but can't technically afford the mortgage.

"We also have to be conscious of that demand side. We were hoping beyond hope there may have been some supply things - more house-building - maybe a capital gains tax holiday for landlords just to help them boost supply so we keep that lid on house price inflation."