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Rates
and Allowances for 2004 and 2005
Gordon
Brown has been waging war on contrived tax advice for some
time now. He has:
- introduced
a 'Benefit in Kind' Income Tax charge where a donor retains
a benefit in a gifted asset.
- legislated
against certain Film Partnership transactions
- announced
that tax avoidance scheme details will have to be provided
to the Inland Revenue
- stopped
rollover of gains on property into Trust
Now he has started
on relatively standard tax advice. He has:
- prevented
owners of companies with a low profit from paying dividends
and paying no tax
- announced
that distorted 'spouse' dividends will come under greater
scrutiny
- increased
the rate of tax paid by Trusts (34% to 40%)
- beefed
up the funding to the Inland Revenue compliance departments
It all means that
we need to tighten up the records kept of transactions as
they happen – not some time afterwards. As we mentioned
last year, this particularly relates to dividends.
The Budget
was relatively quiet in all areas other than small business.
The two main changes come in the treatment of Dividends and
Capital Allowance.
Dividend
Where
a company makes distributions to shareholders who are individuals,
a minimum rate of Corporation Tax of 19% must be applied to
that distributable income. This is not such a big deal - remember
most companies will have already paid this amount of Corporation
Tax whether they make a distribution or not.
The new
rate will apply to distributions made after 1 April 2004.
No further details exist as to how this will operate in practice,
for example how profits will be matched for the purposes of
computing the charge. It seems that the basic idea is to deny
the 0% rate band to those who wish to enjoy their profits
by way of dividend. We will have to wait for the Finance Bill
for the full details.
What
we do know is that companies with profit over £50,000
are unaffected. This new measure is not as penal as many commentators
were predicting and it does not alter the conclusion that
in most cases carrying out a business through a limited company
is still tax efficient.
Capital
Allowances
First
Year Allowances have been increased from 40% to 50% for expenditure
incurred after 1 April 2004 for companies or 6 April 2004
for other businesses. At the same time the 100% First Year
Allowance for computer equipment will be withdrawn.
The
other main area of change relates to Pensions
Pensions
There
are currently eight different tax regimes governing pensions,
each with its own complex rules limiting the amount an individual
can contribute to a pension scheme and the consequent benefits
a scheme can pay out.
Under simplification
all these controls will be removed. In their place will be
a single set of rules that will apply to all registered pension
schemes. Benefits that schemes pay out will be decided by
scheme design and not by Revenue regulations.
The new rules will
only affect individuals with substantial pension entitlement
where their fund is worth over £1.5 million and will
apply from 6 April 2006. Transitional arrangements will protect
pension rights built up before that date.
Rates and Allowances
for 2004 and 2005
Rates and allowances
for income tax, corporation tax, capital gains tax, inheritance
tax and the pension schemes earnings cap are set out below.
|
|
2003-04 (£)
|
2004-05 (£)
|
Increase (£)
|
| Income
tax allowances |
|
|
|
| Personal
allowance
Personal allowance for people aged 65-74
Personal allowance for people aged 75 and over |
4,615
6,610
6,720 |
4,745
6,830
6,950 |
130
220
230 |
| Income
limit for age-related allowances |
18,300
|
18,900 |
600 |
|
Married
couple’s allowance for people born before 6 April
1935
Married couple’s allowance –aged 75 or more
Minimum amount of married couple’s allowance
Blind person's allowance |
5,565
5,635
2,150
1,510 |
5,725
5,795
2,210
1,560
|
160
160
60
50 |
| Capital gains tax annual
exempt amount:
Individuals etc
Other
trustees |
7,900
3,950 |
8,200
4,100 |
300
150 |
| Inheritance
tax threshold |
255,000 |
263,000 |
8,000 |
| Pension
schemes earnings cap |
99,000 |
102,000 |
3,000 |
| Taxable bands 2003-04 (£)
|
Taxable bands 2004-05 (£)
|
| Starting
rate 10% |
0
– 1,960 |
Starting
rate 10% |
0
– 2,020 |
| Basic
rate 22% |
1,961
– 30,500 |
Basic
rate 22% |
2,020
– 31,400 |
| Higher
rate 40% |
Over
30,500 |
Higher
rate 40% |
Over
31,400 |
| Corporation tax profits
2004-05 (£) |
|
| Starting
rate Zero % |
0
– 10,000 |
| Marginal
relief |
10,001 – 50,000 |
| Small
companies’ rate 19% |
50,001 – 300,000
|
| Marginal
relief |
300,001 – 1,500,000 |
| Main
rate 30% |
1,500,001or more |
The
main rate of corporation tax for 2004-05 will be 30 per cent.
National Insurance changes from 6
April 2003
|
|
2003/2004 |
2004/2005 |
| Class
1 Employees |
| On
first |
£89
pw |
Nil
|
£91
pw |
Nil
|
| Between
|
£89
- £595 pw |
11%
|
£91
- £610 pw |
11%
|
| Over
|
£595
pw |
1% |
£610
pw |
1% |
| Employee's
contracted-out rate |
1.6% |
|
1.6% |
Married
womans
reduced rate |
4.85%
of £89.01 to £595 pw, 1% above £595 |
4.85%
of £91.01 to £610 pw, 1% above £610 |
| Class
1 Employers |
| On
first |
£89
pw |
Nil
|
£91
pw |
Nil
|
| Over |
£89
pw |
12.8%
|
£91
pw |
12.8%
|
| Employers'
contracted-out rebate, salary related schemes |
3.5% |
|
3.5% |
| Employers'
contracted-out rebate, money purchase schemes |
1% |
|
1% |
| Class
2 Self employed |
| Flat
rate |
£2
pw |
|
£2.05
pw |
| Small
earnings exception |
4,095
pa |
|
4,215
pa |
| Special
Class 2 rate for share fisherman |
£2.65
pw |
|
£2.70
pw |
| Special
Class 2 rate for volunteer development workers |
£3.85
pw |
|
£3.95
pw |
| Class
3 Voluntary |
| Flat
rate |
|
£6.95
pw |
|
£7.15
pw |
| Class
4 Self employed |
| On
profits between |
£4,615
- £30,940 pa |
8%
|
£4,745
- £31,720 pa |
8%
|
| |
above £30,940 |
1% |
above £31,720
|
1% |
Stamp
Taxes
Transfers
of property (consideration paid)
| Rate |
All
land in the UK |
Land
in disadvantaged areas |
| |
Residential |
Non-residential |
Residential |
Non-residential |
| Zero |
£0-60,000 |
£0-150,000 |
£0-150,000 |
All |
| 1% |
Over
£60,000 – 250,000 |
Over
£150,000 – 250,000 |
Over
£150,000 – 250,000 |
N/A |
| 3% |
Over
£250,000 – 500,000 |
Over
£250,000 – 500,000 |
Over
£250,000 – 500,000 |
N/A |
| 4% |
Over
£500,000 |
Over
£500,000 |
Over
£500,000 |
N/A |
New
leases (lease duty)
Duty
on the premium is the same as for transfers of land (except
that special rules apply for premium where rent exceeds £600
annually). Duty on the rent is charged on the Net Present
Value (NPV). The rates indicated apply to the amount of NPV
in the slice, not to the whole value.
| Rate |
Net
Present Value of Rent Rate |
| |
Residential |
Non-residential |
| |
Slice
of NPV |
| Zero |
£0
- £60,000 |
£0
- £150,000 |
| 1% |
Over
£60,000 |
Over
£150,000 |
The rate of stamp
duty / stamp duty reserve tax on the transfer of shares and
securities is unchanged at 0.5% for 2004-05.
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