Though the increase in the top rate of tax announced in the spring and the further increase in the National Insurance rate are far from good news for many of our clients, as far as Capital Gains Tax (CGT) and Agricultural Property Relief (APR) are concerned, the pre-budget report seems to have largely overlooked farmers and landowners – only this time they should probably be grateful!
So what has changed?
The reduced VAT rate of 15% is due to return to 17.5% at midnight on 31 December 2009. Happily, the Chancellor was not tempted to generate more revenue by increasing it to a higher level (18% or even 20% as some had predicted).
Farmers anbd landowners might consider what repairs they could get done in the next couple of weeks in order to benefit from the reduced 15% rate.
All personal tax rates and thresholds will remain at 2009-10 levels for the forthcoming tax year, rather than increasing as is usual. In April 2010 the top rate of 50% for earnings over £150,000 comes into effct, as set out in the 2009 Budget.
National Insurance contributions will now increase by 1% from April 2011 rather than the 0.5% announced in the 2008 Budget, albeit with some adjustment to the limits to reduce the effect on lower paid workers.
For small businesses (profits up to £300,000), the current tax rate of 21% was due to increase to 22% from April 2010. This increase has now been deferred until April 2011.
This freeze on corporation tax is muted good news for incorporated farm and estate businesses.
Capital Gains Tax
Although, again, it would have been very easy for the Chancellor to increase the rate of CGT from 18% (predictions had ranged between 20% and 25%), this was left alone. This was a wise move as the actual tax revenue raised through CGT is a very small contributor to the total and would have hit individuals and businesses alike.
Many will have been surprised not to have seen an increase in the 18% rate as the squeeze on public finances intensifies. Clients should consider what transfers they ought to make for tax planning purposes while the rate is still so low.
Similarly, the nil rate band for chargeable transfers will not rise (as previously announced) from £325,000 to £350,000 but will remain at £325,000 for 2010-11.
Although not very exciting news, this still leaves couples with an aggregate of £650,000 to use for inheritance tax planning. Perhaps of greater concern was that APR might come under further attack but, again, good sense has prevailed and this has been left alone.
The Chancellor announced a boiler scrappage scheme that will pay people £400 to replace old boilers (rated G or worse) with new energy-efficient ones. Each inefficient boiler adds around £200 to household bills and one tonne of carbon to the atmosphere. It is estimated that up to 125,000 homes may benefit from this scheme.
Although not the subject of a specific announcement in the Pre-Budget Report, the special treatment of furnished holiday lets that saw them enjoying Business Property Relief, sideways loss relief and capital allowances will end (as announced in the 2009 Budget) on 5 April 2010.
This may make some marginal holiday let properties uneconomic to continue and it may be possible to get a wider residential consent so as to let these under Assured Shorthold Tenancies. Either way, a gift of these properties down the generations before 6 April 2010 should still enjoy Holdover Relief from any CGT liability, a relief that will be lost after April.