Pre Budget Report

With the general election just around the corner next year all eyes and ears were focused on the Chancellor last week when he delivered his Pre-Budget Report.  Was he going to make extensive tax changes in an attempt to bring in more funds to pay for recent high borrowings?

I think it’s fair to say that many of us were expecting a rise in the capital gains tax rate.  The rate has been 18% since April 2008, when the then Chancellor in his report in 2007 announced a dramatic decision to overhaul capital gains tax by, amongst other moves, abolishing taper relief, imposing a flat rate of 18% and introducing Entrepreneurs’ Relief.

Another interesting point was the lack of any announcement to make changes to Business Property Relief or Agricultural Property Relief, which can be valuable inheritance tax reliefs. It’s possible these reliefs may be open to change so the message would be plan now to see how you can make best use of them.

So what announcements were made?  I’ll mention some of the main ones here.  The various personal allowances and tax bands will be frozen for next tax year (from 6 April 2010).  This includes the nil rate band allowance for inheritance tax (which will be frozen at £325,000).  The previous plan had been that it would increase to £350,000.  At the moment we can only guess where we will be with inheritance tax a year from now.

The favourable tax relief for furnished holiday lettings (FHL) will be removed from 6 April 2010 – something we had already been told about earlier in the year.  Until then the relief is available on properties located anywhere in the European Economic Area, so if you have a FHL you should get advice on the tax relief you can get up until 5 April 2010. 

National Insurance Contributions rates are set to increase, generally by 1%, from April 2011. Whilst this may seem a small change on paper it is likely to have a big impact, for both employers and employees.

The corporation tax for small companies rate (businesses with taxable profits up to £300,000) is set to stay at 21%.  The higher rate of corporation tax stays at 28%.

We had already been warned that from 6 April 2010 there will be a 50% top income tax rate on income in excess of £150,000.  Taxpayers may be looking for capital growth rather than income growth to counteract the impact that this change may have.

The Government is also continuing to tackle tax avoidance schemes by extending the scope of the rules regarding disclosure of such schemes.

And bankers beware.  The Chancellor has announced that from 9 December 2009 where banks pay discretionary bonuses of £25,000 or more they will be taxed on those bonuses. This is in addition to the income tax the bankers will be due to pay on receipt of their bonuses.

Taxation seems to be getting ever more complicated. We can help you work through the maze and discuss your opportunities for tax planning.   For further information contact Sarah Bogard, Partner and Chartered Tax Adviser.