Introduction
In his eleventh and almost certainly final Budget,
Gordon Brown produced more than his normal crop of surprises. As
usual, there were many more announcements in the 81 Budget Notes
and press releases than were contained in the Chancellor’s
speech itself. Several had already been heralded in last December’s
Pre-Budget Report (PBR), but many came as a surprise. Those with
the greatest impact included the following:
- The personal income tax regime will be reformed. This will
include a reduction in the basic rate of tax to 20% from 2008/09,
the restriction of the 10% starting rate of tax to savings income
and the bringing into line of higher rate income tax and national
insurance thresholds.
- The corporation tax rate for small companies will rise in stages
to 22% as part of a move to prevent tax-driven incorporation.
The increase in tax rates is accompanied by new anti-avoidance
measures aimed at curbing managed service companies.
- For large companies, the mainstream corporation tax rate will
move in the opposite direction, with a 2% reduction to 28% from
2008.
- The corporation tax changes are accompanied – and partly
financed – by reform of the capital allowances regime. This
will see the abolition of two long-standing allowances for buildings
and a reduction in the writing-down allowance for most assets.
There will also be increases to the rates of research and development
tax credits.
- Changes will be made to the rules for alternatively secured
pensions (ASPs) as foreshadowed in the PBR. The tax treatment
of transferred ASP funds on death remains penal, although the
IHT treatment is marginally better than originally proposed. Also
on the pensions front, the Chancellor has removed tax relief for
individual contributions to pension-based personal term assurance
policies.
- The Chancellor announced that the inheritance tax nil rate
band will rise to £350,000 in 2010/11.
- The ISA investment limit will increase, but by just £200,
and only from 2008/09.
- A plethora of anti-avoidance measures cover everything from
commission-rebated life policies to the purchase of corporate
losses.
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