020 8876 1097 office@blythetax.com

Budget Comment March 2005

This Budget did nothing to alter our belief that Inheritance Tax and Pensions will be the hot topics for the coming year. Inheritance Tax because we are all getting older, Pensions because we are all getting older and because it all changes from 6 April 2006.

So no major Budget changes to any of the taxes. But he did tinker with:

  • Stamp Duty (starting threshold raised to £120,000)
  • Inheritance Tax Nil Rate Band (up to £270,000)
  • ISA’s (extended to 2010)
  • Child Tax Credit (increased)
  • Anti-avoidance measures (various)
  • Rates and Allowances (set out beyond)

More important are the changes on 5 April 2005 announced previously:

  • Pre Owned Asset Tax (POAT) starts (affecting Inheritance Tax planning) announced in 2003
  • Child Trust Funds (£250 to children born September 2002) announced in 2003
  • Pension ‘Simplification’ (Phase 1 – technical rule changes) announced in 2002

And it is this Pensions ‘Simplification’ topic that will dwarf all others (even Inheritance Tax) in the coming year. The Government is trying to rationalise the many different pension regimes under one umbrella (hence ‘Simplification’). Phase 2 with the really dramatic changes takes place on 6 April 2006. There are issues here for people with Personal Pensions, company schemes (final salary or not) and of course for those with no pension.

Don’t believe your Sunday Supplements that we will all be putting our Verbier ski chalets, Spanish Villas and houses for the children into our pensions. That will suit some but there is more to it!

The rules will be much softer on the underlying investments and we will see a growth in SIPPs (Self Invested Personal Pensions) to facilitate this. The rules will also be much softer on how much we can put in each year (100% of earnings), but much harder on the maximum allowable in the pot (£1,500,000).

There are decisions to be taken before 5 April 2006 especially for people with funds close to the maximum and there will be at least 4 ways of taking a pension in retirement.

We will be trying to contact everyone affected over the coming months to explain the impact on the planning, but don’t wait for us, if you want an earlier view please call.

And please call if you want any Inheritance Tax comment or Budget 2005 clarification. Remember Pensions and Inheritance Tax are strongly linked – the higher your pension income, the more of your other assets you can put beyond the Chancellor’s grasp!

Rates and Allowances for 2005 and 2006

Rates and allowances for income tax, corporation tax, capital gains tax, inheritance tax and the pension schemes earnings cap are set out below.

2004-05 (£)

2005-06 (£)

Increase (£)

Income tax allowances
Personal allowance
Personal allowance for people aged 65-74
Personal allowance for people aged 75 and over

4,745
6,830
6,950

4,895
7,090
7,720

150
260
270

Income limit for age-related allowances

18,900

19,500

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

5,725

5,795

2,210

1,560

5,905

5,975

2,280

1,610

180

180

70

50

Capital gains tax annual exempt amount:
Individuals etc
Other trustees

 

8,200
4,100

 

8,500
4,250

 

300
150

Inheritance tax threshold

263,000

275,000

12,000

Pension schemes earnings cap

102,000

105,600

3,600


Taxable bands 2004-05 (£)

Taxable bands 2005-06 (£)

Starting rate 10%

0 – 2,020

Starting rate 10%

0 – 2,090

Basic rate 22%

2,020 – 31,400

Basic rate 22%

2,090 – 32,400

Higher rate 40%

Over 31,400

Higher rate 40%

Over 32,400


Corporation tax profits 2005-06 (£)

 
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 2005-06 will be 30 per cent.

National Insurance changes from 6 April 2005

2004/2005

2005/2006

 Class 1 Employees
On first

£91 pw

Nil

£94 pw Nil
Between

£91 - £610 pw

11%

£94 - £630 pw 11%
Over

£610 pw

1%

£630 pw 1%
Employee's contracted-out rate 1.6%   1.6%
Married womans
reduced rate
4.85% of £91.01 to £610 pw, 1% above £610 4.85% of £94.01 to £630 pw, 1% above £630
 Class 1 Employers
On first

£91 pw

Nil

£94 pw Nil
Over

£91 pw

12.8%

£94 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 £2.05 pw   £2.10 pw
Small earnings exception 4,215 pa   4,345 pa
Special Class 2 rate for share fisherman £2.70 pw   £2.75 pw
Special Class 2 rate for volunteer development workers £3.95 pw   £4.10 pw
Class 3 Voluntary
 Flat rate £7.15 pw £7.35 pw
 Class 4 Self employed
On profits between £4,745 - £31,720 pa 8% £4,895 - £32,760 pa 8%
  above £31,720 1% above £32,760 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 - £120,000 £0 - £150,000
1% Over £120,000 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 2005-06.