Make hay while the sun shines!

Alistair Darling, Chancellor of the Exchequer, delivered his 2010 Budget which seems to be a fairly neutral economic juggling act with the General Election in mind. Although rather unexciting there is no doubt there are more fireworks to come in the lead up to the General Election and the first budget of a new Government later this year. This is when we will see what the parties wish to do about the economic difficulties around us.

Like the curates egg – there is some bad news and some good news in the Budget. Billed as a “workmanlike” (whatever that means!) Budget it did have something, however small, which affects many.

Capital gains tax - included in the Budget were a number of good proposals which take effect from 6 April 2010. The first is that capital gains tax remains at the rate of 18% and the Entrepreneurs Relief lifetime limit is extended from £1m of gain to £2m of gain to be taxed at the effective rate of 10%. The additional £1m is only available to disposals after 5 April 2010 and does not affect previous disposals. There are no doubt some planning points here that we can all consider. Should disposals be accelerated if we think a rise in capital gains tax rates will happen?

Capital allowances - the annual investment allowance, whereby machinery can be written off at 100% for companies, partnerships where all the partners are individuals, and sole traders, has been doubled from £50,000 to £100,000 from 1 April 2010 for companies and from 6 April 2010 for sole traders and partnerships. Encouraging investment in business can only be good for the country. However, it is noted that there is still an anomaly in the legislation in that this applies to partnerships of individuals and not to partnerships with corporate or trust partners. Such partnerships will need to consider a structural change if they want to take advantage of these allowances.

Income tax - Income tax rates will continue as proposed last year in that there will be a 50% top income tax rate for those earning more than £150,000. Nevertheless, the withdrawal of personal allowances from £100,000 onwards means a very substantial increase in the tax charge when taking into account the National Insurance Contribution (NIC), which also rises a further 1% in April 2011. No doubt many taxpayers will be trying to avoid the 50% charge and therefore looking to incorporate businesses and this may be a planning point to consider going forward. NIC is becoming a penal tax for employees and employers and where the same person is both, the NIC rate can be 24.8% in 2010/11.

Corporation tax - There has been no change in the corporation tax rates at 21% for small companies and 28% for large companies.

Stamp Duty Land Tax - The only changes to Stamp Duty Land Tax are on residential property sales of £1m or more, where the rate increases from 6 April 2011 (a year away) to 5%, and for first time buyers the threshold has been raised from £125,000 to £250,000 for the next two years from 25 March 2010 to 25 March 2012.

Other announcements included:-

Landfill tax – increases after 1 April 2010 from £40/t to £48/t and then increases further after 1 April 2011 to £56/t.

Inheritance tax – the only change is that the nil rate band of £325,000 (£650,000 per couple) will not increase and remain the same until 2014/15. Obviously no inflation then for the next five years!

VAT – there are changes to the fuel scale charges from the next accounting period starting on or after 1 May 2010. About time we all considered battery cars!

Banks –Royal Bank of Scotland and Lloyds especially - will be lending more to small and medium-sized businesses this year. Has anyone told the managers?

Savings – Anyone with any savings will have the ISA limit increased from £7,200 to £10,200 with effect from 6 April 2010. Have you any money left to save?

Fuel duty – the increases will be phased in rather than implemented in one stage. Duty increased by 1p per litre (ppl) from 1 April and there will be further increases of 1ppl on 1 October 2010 and 0.76ppl on 1 January 2011. In April 2014 it will increase again by 1ppl above indexation. Nothing like looking ahead!

Green Investment Bank (GIB) – the Government intends to create a GIB to invest in a low-carbon infrastructure. This will address the emerging equity finance gap. It will start by investing up to £1bn from the sale of infrastructure-related assets. Also now is the time for all landowners to look at their assets and review, with professional assistance, what could be done to benefit from this current desire to spend taxpayers’ money in grant support of alternative energy projects.

What should I do?

What does all this mean? Now is the time to get some capital tax planning done because although the major financial and fiscal deficit has not been addressed in this Budget, no doubt it will be in the budgets to come, which is likely to mean more taxes for those that can afford them.

There were also light-hearted moments in the Budget Speech, which brought a wry smile just to try and show that any Chancellor is human after all! Just remember that if you have a tax haven in Belize, it is now closed!

I am going to sit down with that large bottle of cider and toast the apple growers who are rejoicing now that the extra duty (announced in the Budget) is not to be added. There must be plenty of cider drinkers on the Opposition benches.