press releases

Initial comment on today's budget

24 March 2010

Overview

Was Alistair Darling’s Budget speech really a Budget speech or pre-electioneering politics? As always, the small print in the Budget press releases will contain the detail. But this was certainly presented as a “Budget for recovery”. A £2.5 billion fund to assist small business innovation and to fund key skills is the headline grabber, funded partly by the £2 billion “payback tax” received this year on bank bonuses.

SMEs should be encouraged by the doubling of the Annual Investment Allowance for tax relief on capital spend to £100,000 and by RBS and Lloyds making available new business loans to SMEs of around £50 billion next year compared to £38 billion last year. The Time to Pay Scheme to enable tax payments to be deferred is to be extended throughout the next Parliament – a welcome extension – and a general reduction in business rates is further good news. And for shareholders in SMEs, those qualifying for Entrepreneur’s Relief reduce their tax on sale by up to £80,000.

Upcoming tax increases, including the 50% rate, are confirmed but the Chancellor insists these increases are “not out of dogma or ideology”.

The biggest cheer was saved for the announcement of a tax information exchange agreement with Belize within the next few days, perhaps much to the disappointment of Lord Ashcroft.

Entrepreneur's Relief

For many entrepreneurs, the key feature of the Budget will be the Chancellor’s surprisingly generous approach to capital gains tax. There is no increase in the main rate, which is 18%. When the top rate of income tax rises next month to 50%, the gap between the two rates will be striking.

More significantly for business owners, the amount of Entrepreneur’s Relief is being doubled. At present a business owner who sells a business or company generally has the first £1m of gains taxed at only 10%. From 6 April that will double to £2m. Where a business is owned by a couple, each will have an individual allowance of £2m. That is a tax reduction of up to £80,000 each!

Many business owners will have rushed to sell their companies before the Budget, just in case the rate of capital gains tax was increased. They will now be licking their wounds. A couple of weeks later and anyone with gains over £1m could have saved tax – and paid the tax a year later!

Colin Tice
Tax Partner