Headline:
Budget News: Budget will be a mixed dish, say analysts
Description:
Gordon Brown will make what could be his last budget speech on Wednesday 22 March at 12.30pm, the government has announced.
Analysts expect a mixed budget. According to Paula Tallon, director and head of direct tax with Chiltern: "Given the precedents set in previous budgets and the raft of information that HMRC has, thanks to the Disclosure of Tax Avoidance Schemes (DOTAS) rules now in place, it is almost inevitable that there will be a further raft of anti-avoidance measures aimed at preventing specific tax planning initiatives.
"However, bearing in mind that this could well be Gordon Brown’s last budget before he moves next door to number 10, we believe he may take the opportunity to offer up a few 'sweeteners' on the tax front." she says. "Inheritance tax could well be an area where he could score some popularity points with the general public without actually reducing his overall revenues too badly."
Businesses will be looking out for important developments which were indicated in the pre-budget report in December 2005.
Key measures which will have an immediate impact on businesses are:
UK Real Estate Investment Trusts
REITS are likely to be legislated for in the Finance Bill, and may well be up and running by the end of the calendar year, says Rebecca Benneyworth. Investors will be able to buy shares on the stock exchange and the company will have to distribute 95% of its profits in return for exemption from tax. Recipients will pay basic rate tax on their income, which will be treated as property income. The legislation should contain details of the all-important 'conversion charge' which will be applied to companies wishing to enter the UK-REIT regime, says Tallon. "This will be hugely influential in establishing the overall success of the regime," she says
Planning Gain Supplement
A new tax, this will be levied on the increase in property values consequent upon grant of full planning permission. The tax is in the very early stages of design, but much more should be known about the government's plans after the budget.
Business Property Renovation Allowance
This very generous capital allowance will help businesses renovate property in disadvantaged areas. The relief was included in last year’s Finance Act, but is awaiting approval from the EU before it can commence.
Capital allowances
The pre-budget report promised more developments on capital allowances for business, including the transfer of allowances currently given to leasing companies to their customers, and a new style of capital allowances on cars, abolishing the current 'expensive cars' regime and giving allowances based on the fuel efficiency of vehicles.
Arctic Systems
Despite HMRC’s having won leave to appeal to the House of Lords on this long-running dispute, experts at Chiltern would not be surprised to see legislation being introduced on this issue in the 2006 budget.
Stamp Duty Land Tax
Chiltern expected to see moves on this in the pre-budget report and now believes that the seeding relief available in relation to transfers of UK real estate interests to offshore unit trusts will be either abolished or, alternatively, its scope considerably curtailed. Taxation planning relying on the exemption provided by Section 64A Finance Act 2003 has been very widely deployed by property groups and in a manner that was probably not envisaged by the Treasury. It is unlikley that the status quo will be allowed to continue.
Residence and domicile issues
A review of the rules surrounding residence and domicile has long been mooted, says Chiltern. It is quite possible that such a review may be unveiled in this budget.
Taper relief
It is now eight years since taper relief was introduced and there is speculation that rules will be introduced to align the treatment of business and non-business assets.
Principal Private Residence
Given the profits now arising on the sale of properties, experts at Chiltern say they would not be surprised to see measures in this year’s budget to tighten the rules surrounding principal private residence relief.
At the same time as compiling their list of predictions for this year’s budget, Chiltern’s tax experts have put together a list of what they would like to see in the 2006 budget.
Inheritance tax nil rate band
The revenues netted from inheritance tax (IHT) are actually quite low in terms of the overall tax take and compared to the level of unpopularity this tax attracts and the number of people it affects. A dramatic increase in the nil rate band beyond the increases already announced would be most welcome.
Exempt the main residence from IHT
As mentioned above, IHT does not produce huge revenues for the Chancellor. Where it most often affects ordinary people is where the family home is concerned. Exempting the main residence would be an enormously popular move.
Stamp Duty Land Tax on residential property
Move stamp duty land tax on residential property purchases to a progressive system rather than the current banded system.
Residence rules
An arithmetic test for residence.
Childcare vouchers
Increase the limits on childcare vouchers from the current £50 per week and link the tax benefits to the number of children rather than the number of tax-paying parents.
P11D threshold
Increase the £8,500 P11D threshold to bring it in line with current salary levels.
Capital gains tax for companies
Modernise the capital gains tax rules for companies to align them with the taper approach used for individuals and reform the rollover relief system to bring it up to date.
New businesses
Introduce a tax holiday for new businesses.
Enterprise Management Incentives
Increase the limit per employee from £100,000 to, say, £200,000 per year.
Enterprise Initiative Scheme
Review the excluded trades and simplify the current rules.
UITF40
Extend the time limit for paying the tax caused by the introduction of UITF40 from the three to six years announced in the pre-budget report to ten years.
Analysts expect a mixed budget. According to Paula Tallon, director and head of direct tax with Chiltern: "Given the precedents set in previous budgets and the raft of information that HMRC has, thanks to the Disclosure of Tax Avoidance Schemes (DOTAS) rules now in place, it is almost inevitable that there will be a further raft of anti-avoidance measures aimed at preventing specific tax planning initiatives.
"However, bearing in mind that this could well be Gordon Brown’s last budget before he moves next door to number 10, we believe he may take the opportunity to offer up a few 'sweeteners' on the tax front." she says. "Inheritance tax could well be an area where he could score some popularity points with the general public without actually reducing his overall revenues too badly."
Businesses will be looking out for important developments which were indicated in the pre-budget report in December 2005.
Key measures which will have an immediate impact on businesses are:
UK Real Estate Investment Trusts
REITS are likely to be legislated for in the Finance Bill, and may well be up and running by the end of the calendar year, says Rebecca Benneyworth. Investors will be able to buy shares on the stock exchange and the company will have to distribute 95% of its profits in return for exemption from tax. Recipients will pay basic rate tax on their income, which will be treated as property income. The legislation should contain details of the all-important 'conversion charge' which will be applied to companies wishing to enter the UK-REIT regime, says Tallon. "This will be hugely influential in establishing the overall success of the regime," she says
Planning Gain Supplement
A new tax, this will be levied on the increase in property values consequent upon grant of full planning permission. The tax is in the very early stages of design, but much more should be known about the government's plans after the budget.
Business Property Renovation Allowance
This very generous capital allowance will help businesses renovate property in disadvantaged areas. The relief was included in last year’s Finance Act, but is awaiting approval from the EU before it can commence.
Capital allowances
The pre-budget report promised more developments on capital allowances for business, including the transfer of allowances currently given to leasing companies to their customers, and a new style of capital allowances on cars, abolishing the current 'expensive cars' regime and giving allowances based on the fuel efficiency of vehicles.
Arctic Systems
Despite HMRC’s having won leave to appeal to the House of Lords on this long-running dispute, experts at Chiltern would not be surprised to see legislation being introduced on this issue in the 2006 budget.
Stamp Duty Land Tax
Chiltern expected to see moves on this in the pre-budget report and now believes that the seeding relief available in relation to transfers of UK real estate interests to offshore unit trusts will be either abolished or, alternatively, its scope considerably curtailed. Taxation planning relying on the exemption provided by Section 64A Finance Act 2003 has been very widely deployed by property groups and in a manner that was probably not envisaged by the Treasury. It is unlikley that the status quo will be allowed to continue.
Residence and domicile issues
A review of the rules surrounding residence and domicile has long been mooted, says Chiltern. It is quite possible that such a review may be unveiled in this budget.
Taper relief
It is now eight years since taper relief was introduced and there is speculation that rules will be introduced to align the treatment of business and non-business assets.
Principal Private Residence
Given the profits now arising on the sale of properties, experts at Chiltern say they would not be surprised to see measures in this year’s budget to tighten the rules surrounding principal private residence relief.
At the same time as compiling their list of predictions for this year’s budget, Chiltern’s tax experts have put together a list of what they would like to see in the 2006 budget.
Inheritance tax nil rate band
The revenues netted from inheritance tax (IHT) are actually quite low in terms of the overall tax take and compared to the level of unpopularity this tax attracts and the number of people it affects. A dramatic increase in the nil rate band beyond the increases already announced would be most welcome.
Exempt the main residence from IHT
As mentioned above, IHT does not produce huge revenues for the Chancellor. Where it most often affects ordinary people is where the family home is concerned. Exempting the main residence would be an enormously popular move.
Stamp Duty Land Tax on residential property
Move stamp duty land tax on residential property purchases to a progressive system rather than the current banded system.
Residence rules
An arithmetic test for residence.
Childcare vouchers
Increase the limits on childcare vouchers from the current £50 per week and link the tax benefits to the number of children rather than the number of tax-paying parents.
P11D threshold
Increase the £8,500 P11D threshold to bring it in line with current salary levels.
Capital gains tax for companies
Modernise the capital gains tax rules for companies to align them with the taper approach used for individuals and reform the rollover relief system to bring it up to date.
New businesses
Introduce a tax holiday for new businesses.
Enterprise Management Incentives
Increase the limit per employee from £100,000 to, say, £200,000 per year.
Enterprise Initiative Scheme
Review the excluded trades and simplify the current rules.
UITF40
Extend the time limit for paying the tax caused by the introduction of UITF40 from the three to six years announced in the pre-budget report to ten years.
Date:
21.02.2006
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