Another budget has come and gone – the last one before the general election. What are the important issues?
Firstly, let us cover what is not in the budget. There are no new increases in VAT, income tax, National Insurance, Capital Gains Tax or Corporation Tax. But remember that many previously announced tax rises such as the new 50% top rate of income tax and the loss of personal allowances for those earning more than £113,000 take effect from 6 April.
Does it mean it is less complicated?
Like most budgets, the Chancellor only announces a small amount of detail in his speech. Most of the important issues are published in the small print. The Budget notes run to 161 pages. Further proposals are also noted on the Revenue website. It has been quite difficult finding out all the important points.
What is the big headline change?
The major headline from this budget is the abolition of Stamp Duty Land Tax on the purchase by first-time buyers of residential property costing less than £250,000. This measure applies to all property purchases from 25 March 2010 until 25 March 2012. But, as I say, this only applies to first-time buyers.
It is very much a double-edged sword because it is proposed to increase to 5% the Stamp Duty payable on the purchase of homes costing £1million or more from 6 April 2011.
Any good news for business?
There are several items of good news for business owners. Firstly, the amount of the annual investment allowance has been doubled to £100,000. This means that a business can spend £100,000 on new capital expenditure such as computers, commercial vehicles, plant and machinery and claim the amount as a deduction when working out their Corporation Tax bills.
Secondly, for business owners, the amount of the Entrepreneur’s relief has been doubled. This applies to the amount of capital gains tax a business owner pays when he sells his business. Currently if you make a gain of up to £1million on the sale of your business, you only pay 10% on the profit and 18% thereafter. From 6 April you will pay tax of 10% on the first £2 million of gains. It could potentially save you £80,000 in tax.
Thirdly, for the very small business, the VAT registration threshold has been increased to £70,000 and the deregistration amount to £68,000. This means that a business will need to have turnover of £70,000 in any consecutive 12-month period before it needs to register for VAT. And any business that is currently registered can cancel its registration if its turnover is less than £68,000.
Fourthly, the ‘Time to pay’ proposals that allow businesses to pay tax over a period will be extended for the life of the next Parliament.
And finally, Lloyds TSB and RBS are going to make an extra £94 billion available in loans to business over the next 12 months and 50% of this money will be set aside for small business
Any bad news for business?
Many of our clients have used Employee Benefit Trusts (EBTs) in the past to reward the owners of a business in a very tax-efficient way. It is often possible to pay income in the form of a loan for a tax cost of less than 2% per year. The Revenue has announced that proposals will be introduced from 6 April 2011 to stop this tax avoidance.
Another anti-avoidance measure announced covered the write-off of loans to directors. It used to be possible to obtain a Corporation Tax deduction for the loan write-off, provided that it was structured correctly. Unfortunately, this neat planning point can no longer be used.
How about Green issues?
There are more changes to company car tax. Employees and directors pay tax based on a car’s CO2 rating when they are provided with a company car by their employer. If that car is an electric car that does not produce any CO2, the taxable benefit is now zero. So a company electric car will not give rise to any tax bill for the employee or director.
How about personal finance?
The ISA limit for everyone increases to £10,200 from next month and this is going to be index-linked in the future. Half of the £10,200 can be invested in cash.
There is going to be a new savings account introduced for the very low paid, called the Saving Gateway. It is a two-year government-sponsored savings account. The government intends giving 50p for every pound saved after the end of two years.
The bad news for high earners is the restriction of tax relief on pension contributions for high earners. The rules are quite complex if you earn over £180,000 and tax relief is restricted to basic rate.
Every budget brings its bad news for drinkers, smokers and drivers. What is the damage this year?
There are the usual increases in duty on alcohol and tobacco. The duty on wines, beers and spirits increases by 2% from Sunday so there is still time for a last-minute rush to the supermarket or off licence to stock up with supplies! Bad news for cider drinkers, as the duty increases by 10% from Sunday.
Tobacco duty increases by 1% from Sunday and then by 2% for each of the next four years.
There is a little bit of good news with the duty on petrol. This was intended to increase by 3p a litre from April but this is going to be increased in stages instead of all in one go.
It seems that they are going to tax us more while we are alive. Are there any changes to the tax payable when you are dead?
As Benjamin Franklin said, there are no certainties in life apart from death and taxes. And Inheritance Tax, the tax on death, will raise extra revenue over the coming years. The Inheritance threshold was due to rise to £350,000 from £325,000 from 6 April 2010. This proposal was cancelled and the nil rate band will also remain at £325,000 until 2015.
This means that any estate worth more than £325,000 will pay tax at 40% on the amount above £325,000 for the foreseeable future.
Will all of these proposals become law?
That is a very good question. It will depend on the result of the next general election. If we do have a change of government, the Conservatives have already stated their intention to introduce another budget in June and they may reverse many of these proposals. If they do, it gives a reason for another podcast!
Please email me if you’d like clarification of any points arising from the budget.