Budget Comment March 2005
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 |
4,895 |
150 |
| 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 |
5,905 5,975 2,280 1,610 |
180 180 70 |
| Capital gains tax annual
exempt amount: Individuals etc Other trustees |
8,200 |
8,500 |
300 |
| 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 |
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 |