Budget Review 2011
25 March 2011
“The nation should have a tax system that looks like someone designed it on purpose.”
William Simon - Treasury Secretary during the Nixon administration
It's not clear at what exact point during George Osborne's second Budget speech his esteemed colleague the Secretary of State for Justice (Ken Clarke) decided to nod off. Was the Chancellor's thought of moving towards a well designed tax system too much for him?
The ongoing review by the Office of Tax Simplification has already confirmed that 54 insignificant or redundant reliefs are to be removed from tax legislation. Perhaps there is still a long way to go before we reach a perfect tax system, but, in what has been described as a "tax neutral" Budget, Mr Osborne believes he has provided a firm foundation to build on this idea.
- From 1 April 2011, the main rate of corporation tax will be reduced to 26%, with the rate for smaller companies being reduced to 20%. Reductions were announced last year but the main rate has been lowered by a further 1% than expected.
- The rate of Inheritance Tax will be reduced by 10% if 10% of your estate is gifted to charity from 6 April 2012, with the main rate continuing to be 40%. The nil rate band is frozen at £325,000 until 2015.
- The life time limit for Entrepreneurs’ Relief has been doubled to £10 million from 6 April 2011, with the annual exemption for capital gains being increased to £10,600 for individuals from the same date.
- From 6 April 2011, individuals will be able to receive 30% income tax relief (previously 20%) on the cost of their Enterprise Investment Scheme (EIS) share subscriptions, and from 6 April 2012 the levels of investment set for both the EIS company and the investors will be increased.
- The £1,000 increase to the basic personal allowance was announced last year, which brings it to £7,475 from 6 April 2011, however, a further increase of £630 has been confirmed from 6 April 2012, putting the tax free amount up to £8,105 for the 2012-13 tax year.
- The 50% tax rate has been acknowledged as a “temporary” measure, but there has been no indication as to when this will be removed.
- The proposed national insurance increases have not been altered and the 1% rise in employers’ and employees’ contributions will continue to apply from 6 April 2011.
- Introduction of legislation allowing companies to make an irrevocable election for exemption from UK corporation tax on all foreign branch profits. Anti-avoidance measures will be included as will exclusions for certain activities.
- 21 new Enterprise Zones have been announced, which may offer investors a tax efficient alternative to help plan for their future.
- There is to be consultation on the residence rules, with the intention of providing a statutory definition of the term “residence” for tax purposes. The non-domicile remittance basis charge is set to increase from £30,000 to £50,000 after twelve years of residency, and all of these changes are to be introduced from 6 April 2012.
- Charities that receive a large number of small donations under £10 (up to a total of £5,000 per year) will be able to claim a tax refund in the same manner as Gift Aid donations. The previous cap on the level of benefit obtained by a donor from a charity has also been increased to £2,500 for donations over £10,000, and consideration is being given to tax reliefs for donating art to the State.
- Enhanced Research & Development tax relief for small and medium sized companies is to be increased from 175% to 225% over the next two years.
- Relief is being introduced for Stamp Duty Land Tax where there are bulk purchases of residential property (effective from when the Finance Act becomes law).
- The Business Premises Renovation Allowance scheme has been extended for a further five years.
- There will be long term consultation on the simplification of income tax and national insurance deductions, and how to merge these in to a more streamlined system.
- A review of tax schemes in general to minimise current tax “loopholes”, and tax avoidance schemes involving Stamp Duty Land Tax, VAT, disguised remuneration and the use of company structures to shelter capital gains are to be closed down.
So, are we heading for a well designed tax system? As always, “the devil is in the detail” but if you’d like to discuss any of the above issues or any other aspect of your tax affairs, please speak to your usual Springfords contact.