Nick Holmes' Blog
1 Apr 2010
Darling you appear a little browned off!
I find it quite difficult to summon the energy to write anything about the budget. Yes I am cheesed off with all of this. By the time the Chancellor started speaking I had finished the cheese and moved on to the coffee and cigars. And at this late stage, I am in a cab with two lady companions on my way to The Pink Pussycat in Lower Regent Street.
It is not because it isn’t relevant; in fact there were some rather frightening inclusions in the detail. My lack of enthusiasm comes from the fact we have put up with these career politicians who couldn’t tell it straight if their lives depended on it. It was interesting to see the three Chancellors debate, yet nobody asked the obvious question "have you ever visited planet earth?"
We all know what is coming, higher taxes blah blah spending cuts blah blah. The only sensible advice is to get your houses in order and ensure you understand what flexibility you have on all aspects of tax planning, there is nothing else you can do at this stage. If you have something planned get on with it.
There is no magic solution, it is down to you and your advisers to choose the route that suits you and it all depends where you are trying to get to. What follows is the Chavereys take on things.
Income Tax
There were no new announcements in relation to Income Tax and personal allowances. We already knew the following were going to apply:-
- A new additional rate of Income Tax at 50% for income over £150,000.
- Tax allowances and thresholds will be the same in tax year 2010/11 as for 2009/10. Personal allowances will also be withdrawn from those with adjusted net income above £100,000 (reducing by £1 for every £2 of income above £100,000).
- A one-off bank payroll tax at 50% payable by the employer on all discretionary and contractual bonuses awarded by banks, building societies and financial businesses to their employees between 9 December 2009 and 5 April 2010.
- Dividends potentially liable to the 50% rate of tax will be taxed at a new rate of 42.5%.
- Trust tax rates increase to 50%.
- The overall annual ISA subscription limit goes up from £7,200 to £10,200.
- From 6 April 2011, employers NIC will increase by 1.0% to 13.8% and, for employees, NIC will increase by 1.0% bringing the rate for those above the upper earnings limit to 2.0%.
Commentary
The tapering of the personal allowance produces an effective Income Tax rate of 60% on income between £100,000 and £112,950, comfortably the highest in the G20. Other than buying a one way ticket to a tax haven it is difficult to see what tax planning can actually be done by the average individual. As we have previously advised, corporate entities will be back in vogue but beware future anti-avoidance legislation on these and the Stamp Duty Land Tax implications for partnerships. The Tories will reverse the NI increase which is probably worth a vote in itself.
Pensions
- The pensions annual allowance increases to £255,000 and the lifetime allowance to £1,800,000, but will then remain at the same level up to 2015/16.
- Income Tax relief for pension contributions made by high earners (or by their employers on their behalf) is to be reduced from 6 April 2011 alongside the introduction of a ‘benefit-in-kind’ charge. Membership of a company pension arrangement becomes taxable like a benefit-in-kind from 6 April 2011 – affecting individuals with relevant income of £130,000 per annum or more; and gross income (including the pension benefit-in-kind), of £150,000 per annum or more, the charge operating between 0% and 30% with a taper for gross income between £150,000 and £180,000. The details are still under consultation.
Commentary
Very complicated and if in doubt ask. We hear on the grapevine that the rules won’t last and we may see a return to the old basis of contributions, net relevant earnings and age related contribution bands. The days of the 25% cash lump sum may be numbered.
Capital Gains Tax and Entrepreneurs’ Relief
- CGT will remain at 18% for the time being.
- The lifetime limit for Entrepreneurs’ Relief will increase to £2m for disposals on or after 6 April 2010 meaning that this relief is now worth £160,000.
Commentary
If the 18% rate lasts the next budget in say June we will be surprised. Get on with any disposals that will not attract Entrepreneurs Relief (‘ER’). It is time for those with development gains or exceptional gains to start looking at restructuring to attract ER.
Corporation Tax
- Company tax returns filed on or after 1 April 2011 (in respect of periods ending on or after 1 April 2010) must be filed online and payment made electronically. The iXBRL format will be required not only for the return but also for the accompanying accounts.
- £50,000 loss carry-back of up to three years ends for accounting periods ending before 23 November 2010.
- Rates stay the same.
Commentary
Let’s wait and see if the Tories decide to drop rates (if they get in?). We advise all to look at a corporate structure because the potential benefit where investment is being made is huge and on the whole this sector invests. We will be surprised if some sort of investment surcharge isn’t introduced to stop businesses hoarding cash in companies, back to the seventies!
Inheritance Tax
- No change – the nil rate band is to remain at £325,000.
Commentary
It was good of the Tenant Farmers Association to suggest that Agricultural Property Relief and Business Property Relief should be restricted without consulting anyone else! We have to face facts that IHT planning will get more difficult and sham arrangements are increasingly vulnerable. We still contend that most practitioners have a dangerously low level of knowledge on this and it is vital that specialist advisers are employed. Other than ’get on with it’ there is not a lot else to say on this. Asset values are still low and inflation will make gifts more expensive over the next few years.
Capital Allowances
- From April 2010 the Annual Investment Allowance (AIA) is doubled to £100,000.
- The 40% rate introduced for 09/10 is not to be extended.
Commentary
Do not get caught up in capital allowances, they are just a deferral of tax and one could argue by spending now you are just deferring into a higher future tax bracket. It seems more sensible to concentrate on permanent tax savings by using a corporate vehicle and abandoning the AIA.
Stamp Duty Land Tax
- The Budget introduced a relief from Stamp Duty Land Tax (SDLT) for purchases of residential property of up to £250,000 by first-time buyers from 25 March 2010 for two years. To fund this additional relief a higher SDLT rate of 5% will be introduced from 6 April 2011 for purchases of residential property exceeding £1 million.
- Partnerships are under further attack with new anti-avoidance legislation.
Commentary
The attack on partnerships is concerning, particularly given that the majority of farming businesses are partnerships. We are not as concerned as we first were about the proposed changes but it is unclear what it will mean in practice. The short advice is that schemes to avoid SDLT using partnerships are finished. If transactions involving partnerships are for bona fide reasons then there should not be an issue. This is a topic we are investing a lot of time in simply because sooner or later the Revenue will realise most people are ignoring the rules and there will be a clamp down on partnership transactions.
Value Added Tax
- No change in rate yet.
- Partial exemption rules to change.
- The ‘Lennartz’ principle, which allows taxpayers who use immovable property, boats and aircraft for both business and non-business purposes to recover all the VAT on such assets up front and pay for private use through ongoing charges is to be removed.
- VAT fuel scale charges have been amended and new rates will be introduced from 1 May 2010.
- The VAT registration threshold will increase to £70,000 from 1 April 2010.
Commentary
As with CGT a likely increase is on the cards. We are sending a separate note on the changes to partial exemption.
Green Taxes
Nothing of great relevance yet(!) despite various noises from the Government about the ‘green investment bank’ scheme. This is a hugely relevant area for our sector and has huge potential for farms and estates. We are going to produce an ongoing supplement on the tax issues and grant availability in this area.
