Introduction
In his eleventh and almost certainly final
Budget, Gordon Brown produced more than his normal crop of surprises. As usual,
there were many more announcements in the 81 Budget Notes and press releases
than were contained in the Chancellor’s speech itself. Several had already
been heralded in last December’s
Pre-Budget Report (PBR), but many
came as a surprise. Those with the greatest impact included the following:
- The personal income tax regime will be reformed.
This will include a reduction in the basic rate of tax to 20% from 2008/09, the
restriction of the 10% starting rate of tax to savings income and the bringing
into line of higher rate income tax and national insurance thresholds.
- The corporation tax rate for small companies will
rise in stages to 22% as part of a move to prevent tax-driven incorporation.
The increase in tax rates is accompanied by new anti-avoidance measures aimed
at curbing managed service companies.
- For large companies, the mainstream corporation
tax rate will move in the opposite direction, with a 2% reduction to 28% from
2008.
- The corporation tax changes are accompanied –
and partly financed – by reform of the capital allowances regime. This
will see the abolition of two long-standing allowances for buildings and a
reduction in the writing-down allowance for most assets. There will also be
increases to the rates of research and development tax credits.
- Changes will be made to the rules for
alternatively secured pensions (ASPs) as foreshadowed in the PBR. The tax
treatment of transferred ASP funds on death remains penal, although the IHT
treatment is marginally better than originally proposed. Also on the pensions
front, the Chancellor has removed tax relief for individual contributions to
pension-based personal term assurance policies.
- The Chancellor announced that the inheritance tax
nil rate band will rise to £350,000 in 2010/11.
- The ISA investment limit will increase, but by
just £200, and only from 2008/09.
- A plethora of anti-avoidance measures cover
everything from commission-rebated life policies to the purchase of corporate
losses.
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