Tax & Accounting News

Pre-Budget Report

05/12/2005

The Chancellor has delivered his Pre-Budget Report. We summarise below the main points affecting company and personal income, taxation and pensions, including points from the press releases and supplementary documents.

Income tax, national insurance and working tax credit allowances and rates

The usual small increases in income tax, tax credit and national insurance allowances and thresholds are proposed. There is, however, a large increase in the amount by which income is allowed to rise from one tax year to the next without affecting tax credits, from £2,500 to £25,000. Click here for full details.

Corporation tax

The short-lived Non-Corporate Distribution rate and the zero rate are both to be abolished and replaced with a 19% flat rate from 1 April 2006. This will mean that companies with a taxable profit of less than £50,000 and with no dividend payments will probably pay more tax. Click here for full details.

New pension scheme rules

It is proposed that the new pension scheme rules which will take effect on 6 April 2006 will be amended so that it will not be possible for a Self Invested Personal Pension or any other self-directed pension, including a Small Self Administered Pension scheme, to obtain a tax advantage when investing in residential property, fine wines, classic cars and art and antiques. There will be a tax charge for such investments of 40% of the value of the asset on the member and 15% of the value of the asset on the scheme administrator. Additional charges will apply where the value of the asset is more than 25% of the value of the total fund. Investments in genuinely diverse commercial vehicles which hold residential property, such as the proposed Real Estate Investment Trusts will, however, be allowed.

It is also proposed that after 5 April 2006 it will not be possible to reinvest (or "recycle") tax free lump sums back into a pension scheme in order to generate further tax relief.

Click here for full details.

Capital allowances

First year allowances on the purchase of plant and machinery by small businesses will be increased from 40% to 50% from April 2006. Click here for full details.

A 100% first year allowance will also be available on expenditure on qualifying biofuels plant. Click here for full details.

Planning gains

As expected, a consultation document has been published regarding the proposed tax (or "supplement") on gains arising on the granting of full planning permission for land. The main proposals are that the tax should not commence before 2008; it will apply both to residential and non-residential development; only a 'modest portion' of the gain will be taxed, and payment will not be required until commencement of development. Click here for full details.

Real Estate Investment Trusts (REITs)

From 6 April 2006, UK resident publicly listed companies which qualify as REITs, and which pay at least 95% of taxable profits to investors, will not be liable to corporation tax on qualifying property rental income or chargeable gains. Click here for full details.

Film production companies

From 1 April 2006, film production companies will receive a 100% tax deduction for the costs of small budget films (including 25% paid in cash), and an 80% tax deduction for the costs of large budget films (including 20% paid in cash). Click here for full details.

Finance leasing

Further details have been released regarding the changes due to take effect from April 2006. Essentially, for 'long funding leases', lessors will be taxed on recognised finance income rather than gross rental receipts, and lessees rather than lessors will be entitled to capital allowances. Click here for full details.

Anti-avoidance measures

A significant number of measures are being introduced to prevent tax avoidance, including the following:

Corporate capital losses: from 5 December 2005, only losses arising from genuine commercial transactions will be allowable. Click here for full details. :

Intangible assets: from 5 December 2005, several schemes which artificially generate tax relief on intangible assets are blocked. Click here for full details.

Sale of lessor companies: from 5 December 2005, a tax charge on the difference between balance sheet and tax written down values of assets will apply on sale of a company which leased assets. Click here for full details.

Stock lending arrangements: from 5 December 2005, a person who swaps taxable interest on cash for income on securities which is subject to less tax will be deemed to receive interest. Click here for full details.

Transfer of assets abroad: from 5 December 2005, here will be a heavier burden of proof for a UK resident individual who has power to enjoy income, or receive a capital sum or benefit from assets transferred abroad, but argues that there was no tax avoidance purpose to the transactions. Click here for full details.

Sale of non-life insurance policies: from 5 December 2005, all capital gains arising on sale of non-life insurance policies are exempt and no losses are allowable, unless the insured assets are chargeable assets. Click here for full details.

Pre-owned assets: from 5 December 2005, the pre-owned assets charge will apply where the asset in question is held in a reverter-to-settlor trust. Click here for full details.

Second-hand excluded property: from 5 December 2005, property situated outside the UK and held in a trust will not be exempt from inheritance tax if an interest in the property was purchased, unless the person benefically entitled to the property is non-domiciled, or the purchased interest is resettled by a non-domiciled person. Click here for full details.

Tax credit changes

From November 2006, recovery of excess current year payments will be subject to the same limits as for previous year overpayments. From April 2007, if a fall in income is reported in the current year, payments will only be increased from that date onwards, and a further payment, if appropriate, will be made after the end of the year. Some reporting requirements also change from April 2007 onwards.

VAT: schemes for smaller businesses

The turnover limit for a business applying to join the annual accounting scheme is to be increased to £1,350,000 excluding VAT from April 2006. The government will also request permission from the EU to increase the turnover limit for the cash accounting scheme to the same amount.

 

Print page