Commenting on today’s Pre-Budget Report, Tim Gregory, partner in the private wealth group at accountants Saffery Champness says:
“In what may well be his last Pre-Budget Report, the Chancellor announced a surprisingly large package of measures. Whilst there was some welcome news, there were sadly also some missed opportunities and one or two initiatives that could well back-fire.
”A new one-off tax on bankers’ bonuses over £25,000 of 50%, to be charged to the employer, on top of the individual’s tax liability. Whilst some action in this area was only to be expected, this massive increase in tax seems very likely to lead to people who really are top banking talent to relocate abroad and continue working from a place where their income may not be taxed in the UK at all. Further, the fact that the tax will be levied on the employer means that the banks can only be expected to encourage this activity.
”The Stamp Duty Land Tax holiday for properties with a value of up to £175,000 will end on 1 January 2010, as previously planned. This is a missed opportunity for the revival of the UK property market. An extension of this holiday, together with a substantial increase in the limit below which it takes effect, would have cost relatively little, but could have inspired enormous confidence.
”Small companies corporation tax rate, which was to increase in 2010/11 to 22%, will remain at this year’s 21%, and this is clearly helpful for a very small number of struggling companies. However, it clearly does not help any businesses that are currently making short term losses, which are in real need of some help. Deferring tax rate increases on profits that are currently dwindling will cost the economy little, and is principally a soundbite.
”The Inheritance Tax nil rate band, above which IHT is charged, is to be frozen at £325,000 for next year, instead of the planned increase to £350,000. This will lead to yet more middle-income people being drawn into the net of this tax that was initially introduced with regard to the very wealthy only.
”Anti-avoidance measures to protect £5 billion of tax revenue. This received arguably the biggest reaction from the House, and there is no doubt that people should not be illegally evading their tax responsibilities. However, this amount of tax is around a half of 1% of each of both tax revenues and the UK’s total debt. Solving this problem is clearly necessary, but it is not going to make very much difference.
”A reduced 10% corporation tax for profits derived from patents is intended to boost innovation, but not all innovators operate through limited companies, and this tax incentive will lead to more regulation for creative people as they find themselves forced to incorporate.
”VAT will return to a rate of 17.5%, and the Chancellor said that he had no further announcements to make on VAT. This is welcome news in the light of recent concerns that there might have been an increase to 19% or even 22% or 23%.”