Introduction
George Osborne described his first Budget as ‘the unavoidable Budget’ in which spending cuts outweighed tax increases by a ratio of 77% spending cuts to 23% tax increases. The capital gains tax changes were less harsh than many feared. The new top rate of 28% is much less than the 40% or 50% rates that had been threatened and it was a relief that the annual exemption will stay at £10,100. The increase in the lifetime limit for entrepreneurs’ relief from £2 million to £5 million will be welcomed by business owners.
The planned reduction in corporation tax rates had been well trailed, while the cuts to capital allowances were less than some had predicted.
On pensions tax relief, the Government is reviewing the complex provisions that were to limit higher rate tax relief for people with high incomes from April 2011 and seems to be considering reducing the annual allowance from £255,000 to between £30,000 and £45,000. The Government will also abolish the current rules that effectively force people to buy annuities with their pension funds at age 75 and will consult on the details.
The big revenue raiser will be the VAT increase in the new year, but the main part of the package – the spending cuts – will be announced in the autumn.
Budget highlights
- The standard rate of VAT will be 20% from Tuesday 4 January 2011.
- The personal allowance will rise by £1,000 in 2011/12, but higher rate taxpayers will not benefit because the basic rate limit will be cut.
- From 23 June 2010, the rate of capital gains tax will increase to 28% for higher and additional rate taxpayers, but will remain at 18% for basic rate taxpayers.
- Entrepreneurs’ relief will continue at 10% and from 23 June 2010 the lifetime limit will be raised to £5 million per person.
- The main corporation tax rate will fall to 27% from 1 April 2011 and be reduced by 1% a year in the following three years.
- The small profits corporation tax rate will reduce to 20% from 1 April 2011.
- The annual investment allowance will be cut to £25,000 from April 2012. The writing down allowances for plant and machinery will also be reduced.
- The effective requirement to buy an annuity at age 75 will be scrapped from April 2011.
- There will be a temporary exemption for employers’ national insurance contributions of up to £5,000 per employee for each of the first ten people employed by new businesses in certain regions, broadly outside London and the South East of England.
© 22 June 2010. This summary has been prepared very rapidly and is for general information only. The proposals are in any event subject to amendment before the Finance Act is passed. It is recommended you seek competent professional advice before taking any action on the basis of the contents of this publication.Last Updated
