Brexit – a brief review of the possible economic and tax impact

Brexit – a brief review of the possible economic and tax impact

With the result from the UK’s EU referendum still reverberating loudly in our ears, the political ramifications have been swift and brutal.  We now have a new Prime Minister, with a largely new Cabinet, who have the monumental task of trying to unpick the UK’s tax and legal system from the multitude of EU legislation interwoven.  The vote for Brexit could presumably have a huge effect on the UK’s tax system.

The market’s reaction in the days after the vote was primarily a correction event, following speculation by traders who thought they could second guess what British voters would do.  The predicted medium term economic impact mostly ranges from a marked slowdown in growth to a full blown recession.  It is expected that the severity of any downswing will determine the government and Bank of England’s response and the tax system may prove a vital tool to either stimulate investment or to raise revenue, as proves appropriate.

In the Budget in March 2016 Chancellor George Osborne committed to reduce the rate of corporation tax to 17% by 2020.  Before becoming the ex-Chancellor he proposed an even deeper (and possibly swifter) cut in corporation tax, down to 15%.  This proposal was tied in with the message that “Britain remains very much open for business” and 15% would represent the lowest rate of corporation tax in the G8 by some margin and would almost rival the 12.5% rate enjoyed in the Republic of Ireland.

Whether this proposal comes to fruition, now that we have a new Chancellor, is uncertain but if it does it will surely motivate unincorporated businesses to consider converting to a corporate structure, unless there are other measures designed to prevent this.

Rumours are swirling that the changes to the taxation of non-domiciliaries, which are due to come in to effect from April 2017, may be delayed by a year or even withdrawn completely.

The impact on the UK property sector will be highly significant, as bricks and mortar has long been seen by many as a safe investment, with prime central London property in high demand by global investors as it has out-performed most other UK asset classes in recent times.  The Bank of England has been widely expected to reduce interest rates in the near future, albeit it didn’t do so when the MPC met on 13 July 2016.

What is certain is that turbulent times are ahead of the UK and potentially the tax system.  Of utmost importance is that, however we voted, we all pull together and forge a prosperous future for the generations to come.