2010 Budget
Originally sent: March 25, 2010Apologies for the length of this report on the 2010 Budget. Despite complaints from some sides that the budget is “empty” I have found plenty in the report and the small print which I believe is of interest to advisers and their clients, although I agree much was announced before the budget.
Business Taxation
Perhaps the biggest giveaway is the increase this year in Entrepreneurs relief from £1,000,000 to £2,000,000. Many clients will be very happy with this gift, worth up to £80,000 in Capital Gains Tax savings on the sale of a business.
Corporation Tax rates and thresholds are unchanged. As announced in the 2009 Pre-Budget Report, there will be a delay in the proposed increase in tax rate for smaller companies, which again many of our clients will find helpful.
In the small print is an announcement the rules on associated companies for the purpose of the Corporation Tax thresholds will be simplified from April 2011. Possibly this is good news. Clients who have avoided an otherwise logical restructuring of their business because of the potential impact on tax rates may find they will then be able to do so, but I am not holding my breath on this until we see the details of exactly what is intended.
The Annual Investment Allowance will be doubled from £50,000 to £100,000 for qualifying expenditure from April 2010. Unless clients are planning to spend more than £100,000 on plant and machinery they should now be able to claim 100% against taxable profits.
There is an extension of the “Time to Pay” system for businesses having difficulties paying their tax bills. Used properly this can be very helpful, but there is a cautionary note. The measure is designed for “viable businesses”. A business owner asking for time to pay, but saying that unless this is granted the business could go under, could be in for a shock. In those circumstances HMRC may no longer regard the business as viable, in which case they are likely to deny “time to pay” and press even harder for payment so they get their money before the business collapses.
The VAT registration threshold has increased from £68,000 to £70,000. Although this was announced as an increase in line with inflation it is marginally below CPI, and significantly below RPI, which were 3% and 3.7% respectively in February.
Personal Taxation
This year personal tax allowances and thresholds, and most of the National Insurance limits and thresholds, are frozen, even though inflation is at least 3%, depending on the measure you choose. The same applies to the Capital Gains Tax exemption, frozen at £10,100, the Inheritance Tax Nil Rate Band, frozen at £325,000 until April 2014, and the Lifetime and Annual Allowances for pensions, frozen at £1,800,000 and £255,000 respectively until April 2015. The freezing of the Lifetime Allowance is of particular significance to clients with pre A-Day protected tax free cash, as they will probably find the benefit of this protection gradually whittling away.
The one NI threshold which is not frozen is the Lower Earnings Limit, which will rise in line with the Basic State Pension. This will increase the number of people who will no longer qualify for credits towards their Basic State Pension unless they are able to increase their earnings.
As previously announced, there is a new 50% top rate of Income Tax on income over £150,000. In the case of dividends the rate is 42.5%. Also as previously announced, the Personal Allowance will be restricted by £1 for every £2 of taxable income over £100,000. This means taxpayers with income between £100,001 and £112,950 will suffer a 60% marginal rate of tax.
Again as previously announced there will be a restriction in the tax relief on pension contributions for those with relevant income over £150,000. The definition of relevant income includes employer pension contributions where income excluding this is £130,000 or more.
National Insurance will increase by 1% from April 2011, on employee, employer and self-employed payments.
Stamp Duty Land Tax will increase by 1% for properties over £1,000,000 from April 2011, and measures have been announced to counter some of the SDLT avoidance schemes used by wealthier property owners. First time buyers over the next two years will not pay SDLT on properties under £250,000, which is a doubling of the threshold for those buyers. The 1% increase was announced as a way of paying for the relief for first time buyers, although it seems unlikely the intention is to reduce it in two years when that relief disappears.
The ISA limit, which is now £10,200 for older investors and will increase to this for all investors from April 2010, will increase with inflation (to the nearest £120) from April 2011.
Miscellaneous Matters
Beneficiaries of settlor interested trusts may now find they have to pay their tax rebates or reductions into the trust. This will be the case where the beneficiary is the settlor and pays tax at a lower rate than the trustees. The good news is that this additional payment into the trust is not subject to Inheritance Tax.
There will be a tightening of the disclosure regime for tax avoidance schemes. This includes a requirement to report the scheme earlier, increased penalties for non-disclosure, an extension of the “hallmarks” of a tax avoidance scheme, a requirement for introducers to identify the scheme promoters, and a requirement for promoters to provide HMRC with client lists.
Deliberate tax evasion on offshore income and gains will result in increased penalties where the jurisdiction does not share tax information with the UK automatically.
The National Minimum Wage will increase in October by 2.2% to £5.93. This is below inflation.
The number of qualifying years for a full Basic State Pension is equalised for men and women from April 2010. It will now be 30 years (down from 44 for men and 39 for women).
The definition of a working week, for the purpose of Working Tax Credit, has reduced from 30 hours to 16 hours.
There will be consultation on allowing AIM investments similar tax benefits to ISA investments, and on widening the range of companies that can benefit from EIS and VCT investments.
The budget report included a suggestion that current residential property prices are close to the likely long term trend. This was determined by comparing rents with the costs of owning a house, including mortgage costs. If this is correct, the implication is that an investment now in residential property may not produce the high returns property investors probably expect.
Finally, there is an announcement the Government is “on track” to launch the sale of the Tote this summer. A deliberate pun to give us some light relief?
I hope you have found this anlysis helpful. Hopefully it is at least a reminder that even in an “empty” budget there are matters of relevance to us and our clients. As financial advisers we must keep abreast of these, and of other changes that could affect our clients and the advice we give them. Keep your eyes open for other e-mails from us which may be helpful, whether simply by alerting you to such matters or by introducing some of the valuable services we offer to financial advisers.
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
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