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In his tenth Budget speech, Gordon Brown focused on
his spending plans. It was left to the Budget Notes and Press Releases to
reveal the important tax changes. Some had been already heralded in the
Pre-Budget Report and in other announcements, but some came as a surprise.
Those with the greatest impact included:
- The tax regime for real estate investment trusts
– REITs – was announced. These are tax efficient ways to hold
commercial or residential property. There will be an entry charge of 2% of
market value and a requirement to distribute at least 90% of income. But the
limit on gearing by a REIT will be a restrictive 1.25:1 of interest to
rent.
- Small companies will benefit from an increased
first year allowance for plant and machinery. There will also be an extension
to the research and development tax credits.
- In an unexpected reverse of a relatively recent
initiative, the exemption for employers to lend employees computers on a
tax-free basis will be removed. Employees will be limited to one tax-free
mobile phone each from their employer.
- The tax system for trusts is being restructured
mainly with effect from 6 April, as already announced. The standard rate band
for trust income was doubled to £1,000 a year.
- The Chancellor also announced that accumulation and
maintenance trusts and many interest in possession trusts would be treated in
the same way as discretionary trusts for the purposes of inheritance tax –
from 22 March 2006. There are very few exemptions
- Venture capital trust investments will qualify for
income tax relief of 30%, down from 40%, and investors will need to hold their
shares for at least five years.
- The Chancellor announced that the inheritance tax
nil rate band will rise to £285,000 for 2006/07, £300,000 for
2007/08, £312,000 for 2008/09, and £325,000 for 2009/10. He also
stated that funds remaining on death in ‘alternatively secured
pensions’ for people over 75 will be subject to inheritance tax.
- As usual, there was a raft of measures to counter
tax avoidance.
The summary has been prepared very rapidly and
may contain errors for which we cannot be held responsible. The proposals are
in any event subject to amendment before the Finance Act is passed. Advice
should be taken before any action. |
