TT12: Pre Budget Statement Issue

November 22, 2001

Improvements to the NHS – at what cost to the taxpayer?

The headline-grabbing feature of the statement was the commitment to increase spending on the National Health Service. The indication is that this extra money will come from only one source – the taxpayer. However, no specific tax raising measures were announced, so we must wait and see what new “stealth taxes” are being hatched.

A large increase in spending on the Health Service plus a slowdown in the economy could spell tough times ahead for taxpaying Middle England.
Welcome changes to Capital Gains Tax
Some good news for the business sector: previously In Topical Tips, we have mentioned capital gains tax (“CGT”) Taper Relief for Business Assets (as defined). The intention to relax the rules for this relief with effect from 6 April 2002 was reiterated.

This means owners of qualifying business assets (usually shares in unquoted trading companies) will enjoy an effective 20% rate of CGT after owning the asset for only one year, with the rate dropping to 10% for periods of more than two years. This makes the UK CGT regime very attractive for entrepreneurs.
Attractive share schemes for smaller businesses
Another matter that we have previously mentioned in Topical Tips is the Enterprise Management Incentive (“EMI”) share option scheme that is designed for smaller companies. The definition of “small” is to be revised with effect from 1 January 2002 when companies with gross assets of up to £30m will qualify.

This doubles an already generous limit and is to be much welcomed. The EMI scheme is a flexible and attractive share option scheme for smaller trading companies that enjoys significant income tax and CGT advantages. We have no hesitation in recommending the scheme to suitable companies.
Other Good News

  • a modest reduction in the rate of employer’s national insurance contributions from 11.9% to 11.8% with effect from 6 April 2002 (for higher paid employees, the upper limit has been increased)
  • an intention to provide, from 1 April 2002, CGT exemption for trading companies that dispose of 20% or greater shareholdings in other trading companies
  • the proposal to provide, from 1 April 2002, corporate tax relief for the acquisition of intellectual property, goodwill and other intangible assets
  • stamp duty exemption, from 30 November 2001, on property deals up to £150,000 in designated inner city areas • consultation on enhanced tax credits for R & D by large companies.

Lastly, some bad news
More red tape in administering further proposed tax credits for poorer employees and pensioners.

Talk to Barnes Roffe today
Share this page:
Contact Us
ICAEW The Chartered Institute of Taxation ACCA IPG IR