Pre-Budget 2006
A Brief Summary Prepared by The Old Mill Tax Team
As usual the Chancellor’s upbeat speech gave no indication of the plethora of proposed changes that lie behind. The official Pre-Budget Report amounts to 274 pages. The notes and press notices that can be obtained from HM Revenue & Customs amount to over 100 pages.
The expected attack on “gas guzzlers” did not materialise but the assault on avoidance schemes continues. There are some social measures to reduce child poverty and help working mothers back into work. The tax and national insurance thresholds and rates have been adjusted in line with inflation.
Measures affecting businesses
- From the 6 December six types of transaction, resulting in a reduction in Corporation Tax, which HM Revenue & Customs (HMRC) perceive to be avoidance schemes will become ineffective.
Briefly these involve:-
- Creation of artificial tax losses by acquiring the rights to annual payments by individuals and claiming they are exempt.
- Double tax relief claims.
- Manufactured payments.
- Guarantees and thinly capitalised companies.
- Lease and leaseback of plant and machinery.
- Movement of profits offshore and returning them to UK without tax charge.
- Changes effective from 6 December will enable companies to apply to HMRC to disregard profits of their “Controlled Foreign Companies” that arise from genuine economic activities in the EU or certain states of the EEA. This is as a result of the high profile European Court of Justice case of Cadbury Schweppes. The use of artificial avoidance schemes in this area has also been closed off.
- In the area of VAT:
- The rules regarding the retention of records where a business has been transferred as a going concern have been clarified.
- Where Partial Exemption applies the apportionment between taxable and exempt supplies will require a formal declaration as to the method used. It is intended that this will speed up the approval process.
- The rules for partially exempt businesses making overseas supplies are to be simplified.
“Green Taxes”
Some measures have clearly been introduced to “Save the planet”.
- Where surplus electricity resulting from a householder investing in micro generation technology (wind turbines, solar panels etc) is sold back to the power company the income will not be taxable.
- Rates of fuel duty will be reduced for bio fuels used for specific pilot projects.
- Air passenger duty will be increased from 1st February.
- The Budget 2007 will contain details of Stamp Duty Exemption for new zero carbon homes.
- The availability of the Landlords’ Energy Saving Allowance which provides for Capital Allowances to reduce the taxable rental income is extended to 2015.
The types of allowable expenditure have been extended and the allowance will also be available to companies from 6th April 2007.
- The standard rate of Landfill Tax has increased from £21 to £24 per tonne from 1st April 2007.
Investments & Pensions
- As a result of an internal review some changes to the ISA (Individual Savings Account) regime are proposed.
- Making ISAs permanent with an overall annual limit of £7,000
- Bringing PEPs into ISA regime.
- Removing mini/maxi distinction.
- Child Trust Funds to roll over into ISA on maturity.
- Allowing the transfer of cash into securities within the ISA.
The rules relating to Alternatively Secured Pensions have been tightened up to:
- Require individuals to draw a minimum income.
- Introduce a higher maximum withdrawal.
- Introduce a tax charge on funds transferred to funds of other scheme members.
The rules will be relaxed to make it easier for newly established companies to become UK Real Estate Investment Trusts. The income and gains of such companies are exempt.
Closure of Avoidance Schemes
- The use of “contrived” capital losses to reduce income or gains chargeable to tax will not be effective for disposals on or after 6th December 2006. This applies to individuals, trustees and personal representatives.
- Schemes to avoid Stamp Duty involving the use of leases, partnerships and sub – sales will be ineffective from 2pm on 6 December 2006.
This is a preliminary analysis only and professional advice should be sought before relying on the above or undertaking any transactions. Please speak to your Old Mill contact or a member of the Tax Team.