by John Westwood features@algarveresident.com
John Westwood is the Managing Director of Blacktower Financial Management Group.
George Osborne described his first Budget as “the unavoidable Budget” in which spending cuts outweighed tax increases by a ratio of 77% spending cuts to 23% tax increases.
The capital gains tax changes were less harsh than many feared. The new top rate of 28% is much less than the 40% or 50% rates that had been threatened and it was a relief that the annual exemption will stay at £10,100.
The increase in the lifetime limit for entrepreneurs relief, two million Pounds Sterling to five million, will be welcomed by business owners.
The planned reduction in corporation tax rates had been well trailed, while the cuts to capital allowances were less than some had predicted.
On pensions tax relief, the Government is reviewing the complex provisions that were to limit higher rate tax relief for people with high income from April 2011 and seems to be considering reducing the annual allowance from 255,000 Pounds to between 30,000 and 45,000.
The Government will also abolish the current rules that effectively force people to buy annuities with their pension funds at age 75 and will consult on the details.
The big revenue raiser will be the VAT increase in the new year, but the main part of the package – the spending cuts – will be announced in the autumn.
Budget highlights
• The standard rate of VAT will be 20% from Tuesday January 4 2011
• The personal allowance will rise by 1,000 Pounds in 2011/12, but higher rate taxpayers will not benefit because the basic rate limit will be cut.
• From June 23 2010, the rate of capital gains tax will increase to 28% for higher and additional rate taxpayers, but will remain at 18% for basic rate taxpayers.
• Entrepreneurs relief will continue at 10% and from June 23 2010, the lifetime limit will be raised to five million Pounds per person.
• The main corporation tax rate will fall to 27% from April 1 2011 and be reduced by 1% a year in the following three years.
• The small profits corporation tax rate will reduce to 20% from April 1 2011.
• The annual investment allowance will be cut to 25,000 Pounds from April 2012.
• The writing down allowances for plant and machinery will also be reduced.
• The effective requirement to buy an annuity at age 75 will be scrapped from April 2011.
• There will be a temporary exemption for employer’s national insurance contributions of up to 5,000 Pounds per employee for each of the first 10 people employed by new businesses in certain regions, broadly outside London and the South East of England.
Miscellaneous issues
Retirement Age and State Pensions
The state pension age (SPA), from which individuals can receive the state pension, is currently 65 for men and is rising to 65 for women. Legislation is already in place to increase the SPA to age 66 for everyone from 2026, but the Government wishes to bring this date forward.
The government will consult soon on how it will phase out the default retirement age from 2011.
From April 2011, the state pension will be increased each year by the rise in earnings, or prices, or 2.5%, whichever is the highest. The consumer prices index (CPI) will be used as the measure of prices in the standard minimum income guarantee and basic state pension; however, the uprating of the basic state pension in April 2011 will be based on the retail prices index (RPI).
The guarantee given under the pension credit will be increased by the same cash amount as the state pension.
HMRC Powers
Tackling Tax Avoidance
The government will consider whether a general anti-avoidance rule (GAAR) would be effective in reducing tax avoidance. It will also consider;
• Bringing inheritance tax on trusts within the disclosure of tax avoidance schemes (DOTAS) regime.
• Manipulation of consortium relief.
• The use of employee trusts, including employer-financed retirement benefit schemes (EFRBS).
• Stamp duty land tax on high value property transactions.
Consultation
The government has announced that it will be consulting about future changes in a number of areas. These include the PAYE system, intellectual property, research and development expenditure, non-domiciled individuals, stamp duty land tax, managed service companies (IR35), investment and asset management issues and gift aid.
Tax Policy Making
The government has announced that it will be considering ways to provide taxpayers with greater clarity and certainly in its approach to tax policy.
This includes an intention to create an independent Office of Tax Simplifications.
As independent Wealth Managers and Chartered Financial Planners, we are able to analyse your financial situation and provide a comprehensive report covering most aspect of UK and international taxation and financial planning.
Professional advice must always be taken before any investments are made.
Blacktower Financial Management Group – Telephone 289 355 685.
