13 Apr 2005
Introduction
Chancellor Gordon Brown's freedom of action in this year's budget was restricted by the likelihood of a General Election taking place before the Finance Bill 2005 has had the chance to be passed (this normally occurs in the July following the budget) and the fact that previous budgets have announced changes for some years ahead.However, despite the relatively small number of unexpected changes, the Chancellor has announced numerous measures designed specifically to counter tax avoidance schemes of various sorts.
On the plus side, many clients will breathe easier when they pass through the green channel coming home from holiday. The Chancellor is proposing to raise the tax free limit on goods brought in from outside the EC to £1,000 (from the current limit of £145).
Personal Tax
Income Tax Rates
The personal income tax threshold rises with inflation from £4,745 to £4,895.
Civil Partners
Civil partnerships for same sex couples will be introduced on 5 December 2005. From that date, the intention is for the Inland Revenue to treat civil partners exactly the same in all respects as married couples for tax purposes. See further information from the Inland Revenue website.
Savings for Demutualising Insurers
Although this is not a personal tax measure, it benefits individuals. One little mentioned change that may benefit the many thousands of policy holders in Standard Life (which is in the process of demutualising) is one that continues relief from stamp duty and stamp duty reserve tax charges when an insurance company demutualises.
Capital Gains Tax (CGT) Rates
There were no changes to CGT rates. Numerous anti-avoidance measures have been announced, the most important of which are steps which effectively bring into UK taxation assets which would previously have been regarded as being outside the UK (and thus only taxable if the gains were remitted to the UK if realized by a non-domiciliary).
Trusts
The increase to 40 per cent in the rate of tax on income applicable to trusts (RAT) proposed in the last budget has been confirmed and a new standard rate of income tax will apply on the first £500 of trust income where the RAT is paid. There are also improvements made to the taxation of trusts for the vulnerable. See further information on Inland Revue website.
Stamp Duty Land Tax (SDLT)
The threshold for Stamp Duty Land Tax (SDLT) has been increased from 17 March to £120,000 (£150,000 for residential transactions in designated disadvantaged areas). The duty payable remains fixed at 1 per cent for transactions up to £250,000 - the latter limit has not been increased. These changes will be welcomed by everyone in the property market and represent an attempt to make it easier for first-time buyers to get a foothold in the housing market. However, the new threshold is still below the average price of a house in the UK. The change will also remove the embarrassment for John Prescott over his 'starter homes' initiative. Under the old regime, low priced starter homes would have carried a charge to SDLT. See further information on Inland Revenue website.
Inheritance Tax (IHT)
The IHT threshold is being raised in stages from the current £263,000 to £300,000 over three years. This will remove the burden of IHT for many families whose estates became taxable as a result of rising house prices. The limits will be: 2005/6 - £275,000; 2006/7 - £285,000; and 2007/8 £300,000.
Business Tax
VAT
The registration threshold for VAT is increased from £58,000 to £60,000. The deregistration limit is increased from £56,000 to £58,000 from 1 April 2005.New fuel scale charges apply from 1 May 2005. An updated notice 700/64 (VAT: Motoring Expenses) will be issued shortly. The new rates can also be found on page 21 in this
brochure available on the Treasury website.
Corporation Tax Rates
There were no changes to corporation tax rates.
Landlords – Energy Saving Allowance
The tax relief available for landlords to insulate their tenanted properties is being enhanced to include solid wall insulations.
SDLT
The relief from SDLT for non-residential transactions within designated disadvantaged areas has been abolished. See http://www.inlandrevenue.gov.uk/budget2005/revbn09.htm.Measures are also being taken to require disclosure of schemes which are designed to avoid SDLT liabilities involving commercial properties worth more than £5m to be disclosed to the Revenue. See further information on the Inland Revenue website.
Miscellany
Other changes affecting businesses are:- Insurance duty, air passenger duty and company car tax rates are all frozen. The increase in duty on fuel in line with inflation will take place in September 2005. The carbon dioxide emission standard (140 grammes per kilometre) which qualifies for the minimum (15 per cent of list price) company car tax benefit charge is frozen until 2006/7. The figure on which the car fuel benefit charge is based is frozen at £14,400;
- Money spent on renovating property in a designated disadvantaged area will be eligible for a full tax deduction on the conversion or renovation expenses incurred. To qualify, the building must have been vacant for a year or more and the expenditure made in order to bring the building back into business use;
- Charitable businesses which charge admission fees which are convertible to 'donations', so they can recover the deemed income tax on the donation (worth 28p in the pound), are having this right restricted from 1 April 2005. They will only be able to claim gift aid where the gift allows unrestricted admissions for a year or more, or where the amount paid is at least ten per cent more than the amount which any member of the public would have to pay to gain the same right of admission;
- Employers will be allowed to fund outplacement counselling and retraining expenses for part-time employees when they lose their job without incurring a tax liability. Currently, this relief is available for full-time employees only.
Summary
The Chancellor has announced a budget which is accelerating his intention to drive artificial tax-avoidance schemes out of existence.We recommend that when considering any of the issues mentioned here, you take professional advice before taking any action.
For press releases outlining the budget measures, see the Inland Revenue website at http://www.inlandrevenue.gov.uk/.
The information contained in this article is intended for general guidance only. It provides useful information in a concise form and is not a substitute for obtaining professional advice.
