29th March 2010
Chancellor Alistair Darling delivered his pre-election Budget on 24 March 2010. However, many were left disappointed as there were very few announcements of any real consequence.
From a taxation perspective, there were few surprises as most of the measures had already been announced in the months leading up to the Budget.
There were a number of new incentives introduced in an effort to ‘kick start’ the economy and support specific industries such as residential property and small and medium enterprises generally.
In order to finance some of these initiatives, the government will be penalising the high earners. It has also promised to take a much stricter approach towards tax compliance and has promised to close tax loop holes and introduce mandatory disclosure of certain structures in an effort to increase revenue to the exchequer.
Given the volume of the consultation paper which was published with the Budget yesterday, it is not intended to summarise all of the new measures so this paper will focus on certain taxation measures which may be of interest.
1. Stamp Duty Land Tax (SDLT) - First Time Buyers
Legislation will be included in the Finance Bill 2010 to provide relief from SDLT on residential properties where the consideration is below £250,000. This increased threshold applies where the sale of the property is completed between 25 March 2010 and 25 March 2012 where the purchasers qualify as “first time buyers”. In order to be a ‘first time buyer’ the purchaser must meet all of the following conditions:
- He must be a person who intends to occupy the property as his or her main residence. This excludes purchases by corporate bodies, partnerships or trustees, with limited exceptions; and
- He must not, either alone or with others, have previously acquired a major interest in land which includes residential property, or an equivalent interest in land situated anywhere in the world. This restriction does not apply where the interest acquired was the grant or assignment of a lease with less than 21 years to run.
2. SDLT - Expensive Residential Properties
Whilst the first time buyers are given the benefit of the SDLT saving, it appears this will be financed by an increase in the rate of SDLT to 5% on the purchase of a residential property where the consideration for the purchase exceeds £1,000,000. The increased rate will apply where the sale of the property is completed on or after 6 April 2011.
3. SDLT-Anti-Avoidance Rules-Partnerships
Legislation will be introduced in the Finance Bill 2010 to disapply the current SDLT partnership rules from a ‘notional land transaction’. Where the existing anti-avoidance rules apply, they impose a SDLT charge on a notional land transaction. Current SDLT partnership rules apply to these notional land transactions but these rules are being exploited by arranging a partnership relationship between the seller and the purchaser so that the chargeable consideration (and therefore the SDLT due) is greatly reduced.
4. Business Rates Relief
It was announced that small businesses in England whose premises have a rateable value of up to £6,000 will pay not have to pay business rates for one year from October 2010, and that those businesses whose premises have a rateable value of up to £12,000 will receive a significant reduction in the amount of rates which they have to pay.
This will be achieved by a temporary increase in small business rate relief and the rate relief taper respectively.
Corporation tax — Rates
- The main rate of corporation tax will remain at the current rate of 28%.
- The small companies’ rate will remain at 21% for 2010/11. The planned rise to 22%, which was previously expected to have effect from 1 April 2010, was not mentioned in the Budget.
- The thresholds for the small companies’ rate and the main rate remain at £300,000 and £1,500,000 respectively.
- The marginal rate of corporation tax applying to profits between £300,000 and £1,500,000 will continue to be 29.75%.
1. Inheritance Tax
The rate of inheritance tax will remain at 40% on death estates and 20% for chargeable lifetime transfers.
The 2009 Pre-Budget Report announced that the nil rate band for 2010/2011 would not increase and would instead remain at £325,000. The Finance Bill 2010 will extend the time period for which this nil rate band of £325,000 applies for another five years until the end of the tax year 2014/2015.
2. Capital Gains Tax (CGT)
Entrepreneurs’ relief applies to the gain by an individual made on the sale of a business or shares in a personal company i.e. one in which the individual holds at least 5% of the ordinary share capital and controls at least 5% of the votes for a period of at least 12 months preceding the sale.
It was announced that, with effect from 2010/11, the lifetime limit for the purposes of calculating entrepreneurs’ relief is to double from £1,000,000 to £2,000,000. This means that the individual will pay CGT at an effective rate of 10% on the first £2,000,000 of lifetime gains (i.e. CGT at 18% on 5/9 of the gain) made on the sale of the relevant business or shares.
3. Income Tax
It was confirmed that the additional tax rate of 50% will apply from 6 April 2010 on taxable income in excess of £150,000.
VAT registration thresholds
The VAT registration threshold will rise by £2,000 to £70,000 from 1 April 2010. The de-registration limit rises similarly to £68,000.
The registration and de-registration limits for acquisitions from other EU member states will also be increased from £68,000 to £70,000.
The above proposals are subject to amendment before the Finance Bill receives Royal Assent. Please note that this article should be used for guidance purposes only and legal or other advice should be sought before relying on any information contained herein.