Alastair Darling today announced his last Budget before the next general election. As a result, it was expected to be high on political rhetoric – and it didn’t disappoint. However, at the same time it was low on new measures – which was rather disappointing.
The key points for our Private Clients are outlined below, with some of our initial thoughts.
Overall, the main winners were first-time buyers and small business owners. The main losers were the banks and expensive home owners.
- Stamp Duty for first time buyers has been suspended on house purchases of up to £250,000 for a period of two years starting at midnight tonight. This is double the normal zero-rate threshold of £125,000.
- This allowance will be balanced by a new higher rate of Stamp Duty of 5% on house purchases in excess of £1 million, which will come into force in April 2011.
- No change to VAT
- No change to Capital Gains Tax, which has been maintained at 18% – there had been considerable speculation that this would be brought more into line with income tax, but the Government has not felt the need to do so.
- Entrepreneurs’ Relief has been doubled – i.e. the first £2 million of capital gains from the sale of a business will be at the reduced rate of 10%, thereby saving small business owners up to £160,000 over the standard rate of 18%.
- The Inheritance Tax threshold has been maintained at £325,000 and will be frozen for four years.
- The annual personal ISA allowance will from next year be indexed to inflation.
We would expect the Stamp Duty changes to have a moderate effect on house price activity, perhaps spurring interest at the lower end of the London market as first time buyers are attracted back to the market. However, a £2,500 Stamp Duty tax break is not going to do much towards the corresponding deposit required these days – £25,000 at a bare minimum and more like £62,500.
At the other end of the property market, a new 5% rate of Stamp Duty is likely to fuel activity in this part of the market as the April 2011 implementation date gets closer.
No change in CGT has to be welcomed. Many had speculated about a rise to 25% given the disparity between CGT and the new 50% ‘highest’ rate of income tax. However, we at Kennedy Black believe that the 18% rate sits more closely with the old rate of CGT which was subject to complicated Taper Relief down to 10% in some cases. The gap between CGT and income tax is here to stay, and high earners should be looking to take advantage of this differential.
The increase in Entrepreneurs’ Relief is also to be welcomed, as is the indexation of the personal ISA allowance which had up until this year been relatively static over the ten years since ISAs were introduced. ISAs encourage both saving and investment, and are to be applauded (and fully utilised).
One final point worth making, which raised eyebrows here but was ultimately a bit of a false alarm, was Mr Darling’s promise to come down hard on tax evaders. It generated the biggest cheer of the afternoon, but seems to be little more than a political dig at Deputy Conservative Party Chairman Lord Ashcroft. The UK is about to sign a tax disclosure agreement with Belize, where Lord Ashcroft has dual-nationality. So unless you happen to hail from Dominica, Grenada or Belize then we see little to worry about for the time being.