Budget Highlights

In his tenth Budget speech, Gordon Brown focused on his spending plans. It was left to the Budget Notes and Press Releases to reveal the important tax changes.

Some had been already heralded in the Pre-Budget Report and in other announcements, but some came as a surprise. Those with the greatest impact included:

The tax regime for real estate investment trusts – REITs – was announced. These are tax efficient ways to hold commercial or residential property. There will be an entry charge of 2% of market value and a requirement to distribute at least 90% of income. But the limit on gearing by a REIT will be a restrictive 1.25:1 of interest to rent.
Small companies will benefit from an increased first year allowance for plant and machinery. There will also be an extension to the research and development tax credits.
In an unexpected reverse of a relatively recent initiative, the exemption for employers to lend employees computers on a tax-free basis will be removed. Employees will be limited to one tax-free mobile phone each from their employer.
The tax system for trusts is being restructured mainly with effect from 6 April, as already announced. The standard rate band for trust income was doubled to £1,000 a year.
The Chancellor also announced that accumulation and maintenance trusts and many interest in possession trusts would be treated in the same way as discretionary trusts for the purposes of inheritance tax – from 22 March 2006. There are very few exemptions.
Venture capital trust investments will qualify for income tax relief of 30%, down from 40%, and investors will need to hold their shares for at least five years.
The Chancellor announced that the inheritance tax nil rate band will rise to £285,000 for 2006/07, £300,000 for 2007/08, £312,000 for 2008/09, and £325,000 for 2009/10. He also stated that funds remaining on death in ‘alternatively secured pensions’ for people over 75 will be subject to inheritance tax.
As usual, there was a raft of measures to counter tax avoidance.