The Chancellor, Alistair Darling, has this afternoon delivered his first Pre-Budget report.
After the debate of whether there was or was not to be an election this was Labour's opportunity to refocus the UK population on their general policies.
The pre budget statement is a chance for the Chancellor to warn individuals and businesses about future tax changes, and to provide time for consultation.
As expected their were very few tax announcements in the Pre-Budget Report, other than the taper relief shock, as it was delivered much earlier than in most years, due to the election speculation, and there is an entirely new team at the Treasury.
This said, we will have to see if, as is becoming normal, the devil is in the more detailed press releases and consultation documents.
In case you have not yet been able to catch the main points coming out of the budget report we thought we would summarise them for you.
- The economic growth forecast for GDP in 2007 is 3%, slowing to 2 - 2.5% in 2008 and strengthening to 2.5 - 3.0% in 2009 and 2010. Inflation is close to target.
- There will be increased public spending in areas such as the NHS, education, transport, defence and security.
- No changes in personal allowances, rates of Income Tax or National Insurance were announced. However, the threshold below which taxpayers do not need to make payments on account of their Income Tax liability will rise from £500 to £1,000 for tax due in respect of the 2009-10 tax year.
- The Chancellor restated the government's commitment to tax simplification with the publication of its findings on the case for aligning the administration of Income Tax and National Insurance contributions, as well as the announcement of 3 further reviews in the areas of VAT rules and administration, the operation of anti-avoidance legislation, and the simplification of the Corporation Tax rules for related companies.
- There is an immediate rise in the Inheritance Tax threshold for couples to £600,000, rising to £700,000 by 2010-11. This is in addition to the entitlement to full spouse relief.
- There will be a major reform of capital gains tax, resulting in the abolition of Taper Relief and Indexation Allowances. From 6 April 2008 there will be a single rate of capital gains tax of 18%, with the annual exempt amount (currently £9,200) remaining in place.
- A number of reforms aimed at UK residents who are non-domiciled were announced. These included the introduction of an annual charge of £30,000 for individuals that have been resident in the UK for more than 7 years. In addition the current rules allowing the remittance basis of taxation and the day-counting rules will be tightened.
- Following the recent House of Lords ruling in the Arctic Systems case, and in line with previous statements, the Chancellor reaffirmed the Government's commitment to tackle Income Shifting - the ability of one person to arrange their affairs so that some of their income is diverted to a second person, subject to a lower rate of tax to obtain a tax advantage. Consultation will take place shortly with legislation taking effect from 2008-09.
- A number of specific anti-avoidance measures have been introduced. These include the removal of the exemption from National Insurance Contributions on holiday pay paid via a third party, the tightening of the rules that spread tax relief for large employer pension contributions, the restriction of loss relief for certain individuals paying interest in advance, additional measures to counter the sale and finance leaseback of existing plant and machinery, and the introduction of legislation to tackle certain arrangements that disguised interest income for corporation tax purposes.
- Capital allowances will no longer be available for expenditure on building alterations, made in response to a notice from a Fire Authority. The relief is now thought to be counter-productive.
- Changes are made to the tax treatment of exchange gains and losses arising on loans and derivatives used to hedge the foreign exchange risk on a company's investment in non-sterling trading or business operations.
- A number of measures have been introduced to reduce the administrative burden in the operation of Stamp Duty and Stamp Duty Land Tax. These include the exemption of transfers that currently attract Stamp Duty not exceeding £5 and notification will no longer be required in certain land transactions where the chargeable consideration is less than £40,000.
- Legislation will be introduced to ensure that renovations and alterations to residential properties that have been empty for at least 2 years will be eligible for a reduced VAT rate of 5% - currently the properties would need to be empty for at least 3 years to qualify.
- Legislation implementing Planning-gain Supplement will not be introduced in the next Parliamentary session. Instead, the forthcoming Planning Reform Bill will give Local Planning Authorities the power to apply new planning charges to new development.
- The fixed charge on which the company car fuel benefit charge is based will rise from £14,400 to £16,900 from April 2008.
- From 1 November 2009, Air Passenger Duty (APD) will be replaced with a new per plane aviation duty. Consultation on the details of this new tax will begin shortly.
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