The contents of this Bulletin are based on the proposals put forward by the Chancellor in his Budget speech and explained in documents subsequently published by HMRC and the Treasury. All Budget proposals may be subject to change before the relevant Finance Acts are passed. This may not be until late in 2010.

References to spouse, husband and wife and married couples include references to registered civil partners and civil partnerships.

This Bulletin is provided for general consideration only and no action should be taken or refrained from based on its contents alone. Accordingly, no responsibility can be accepted for any loss occasioned as a result of any such action or inaction. Professional advice must always be taken.

George Osborne's first Budget was always destined to be a painful one. It is one of the unspoken traditions of political life that the first Budget after the General Election is the time to raise taxes, squeeze expenditure and then blame your predecessor for having to do both. The logic is simple: that initial Budget is furthest away from when the electorate next has a chance to change government. With luck, all will be forgotten by the time the polls reopen.

The strategy does not always work - witness Gordon Brown's first Budget raid on pension funds. Mr Osborne's premiere may prove equally durable in parts. For once we did not have a Pre-Budget Report (PBR) to give us some guidance on what to expect. Aside from the drip of leaks, the best steer was the final Coalition Agreement which provided only the broadest of outlines. Who would have worked out that 'taxing non-business capital gains at rates similar or close to those applied to income' would result in a 28% tax rate for 50% taxpayers?

Mr Osborne can argue, with some justification, that he had no alternative but to turn the fiscal screw. The hole in the UK's finances is large, even if the 2009/10 budget deficit came in at £155.4bn according to the latest National Statistics data, rather than the £163.4bn Mr Darling had forecast in his March Budget. At 62.2% of GDP, total UK government debt is little more than half the level of Greece's. However, the March Budget projection of an 11.6% deficit for 2010/11 is higher than Greece's post-austerity programme figure. Markets and ratings agencies have both been waiting for the post-Election Budget before making their decisions on the UK: disappointment could have seen the country joining the ranks of the so-called PIGS (Portugal, Ireland, Greece and Spain).

One difference about the numbers in this Budget is that they are not purely the work of the Treasury insiders. The new government has established the Office for Budget Responsibility (OBR) to make independent assessments of the public finances and the economy. The OBR - currently consisting of three members (based in the Treasury), but due to grow - should limit the scope for the Treasury to choose their economic assumptions on the basis of the projections the Chancellor wishes to reveal.

The headline-grabbing changes announced in the Budget were:

• A rise in the rate of capital gains tax to 28% for higher and additional rate taxpayers from 23 June 2010.
• An increase in the lifetime limit for entrepreneurs' relief to £5m and the effective retention of a 10% capital gains tax rate on eligible gains.
• An increase in the standard rate of VAT to 20%, effective from 4 January 2011.
• An increase in the basic personal allowance by £1,000 for 2011/12.
• A cut in the 2011/12 starting point for higher rate tax by about £1,500. This is designed to remove the benefit of the increased basic personal allowance from higher rate taxpayers.
• Confirmation of the additional 1% to NICs from 2011/12, together with revised employer and employee contribution bands to limit the impact of the increase.
• A reduction in the main rate of corporation tax by 1% a year for four years from April 2011, bringing it down to 24% by 1 April 2014, accompanied by a cut in the small profits rate to 20% in 2011.
• A cut of 2% in the main writing down allowances and a 75% reduction in the annual investment allowance to £25,000, both from April 2012.
• Substantial reforms to tax credits, including a change spread over two years which will greatly reduce the numbers receiving the family element of child tax credit.

In this Bulletin we look at the main changes that will affect individuals and businesses, and examine some of the related planning issues. If any of these strike a chord, you are strongly recommended to consult your financial adviser.

 

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This news item is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as at July 2008. No action must be taken or refrained from based on its contents alone. Accordingly no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.

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