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In his first budget, you would expect that Alistair Darling wanted to make a bit of an impact. Unfortunately, some of the main headline grabbers had already been previously announced in the form of the changes to Income Tax and Corporation Tax rates in the 2007 Budget.
However, despite these, Mr Darling has managed to cause no end of controversy in the lead up to the Budget with the biggest impact on small business owner-managers being the changes to Capital Gains Tax and the introduction of the new “Income Splitting” legislation.
With regard to the Capital Gains regime, the widely publicised “simplification” has inevitably resulted in a much reduced amount of simplification being actually implemented following the protests by business owners who quickly realised after the Pre-Budget Report that their tax bills upon the sale of the businesses would almost double.
The forced u-turn on the original policy, being the introduction of the “Entrepreneur’s Relief”, will result in business owners paying a higher effective rate of tax than previously unless the gain made on sale is less than £1million. “Serial” entrepreneurs will also potentially be caught by the higher rate of Capital Gains Tax as a result of the “Entrepreneur’s Relief” having a lifetime limit.
However, small investors and owners of investment properties, especially those trying to make “a quick buck”, will ultimately benefit from the changes which will result in the tax rate faced on the sale of their investments drop from a maximum of 40% to 18%.
A temporary reprieve was granted to those anticipating the new “Income Splitting” legislation which will receive further consultation before its introduction later in the year, although when it is finally introduced, many small business owners could face a much higher tax bill when coupled with the hike in the Corporation Tax rate and increase in the National Insurance thresholds.
For those who like to have a drink and who drive high-emission cars (not at the same time of course!), increases in duty on alcohol and fuel hit home as expected, given the current stance on binge drinking and the environment.
One of the few winners of the Budget are people who stand to inherit assets who will start to benefit from the combination of the Inheritance Tax allowances for married couples and civil partners, but whilst this effectively makes Inheritance Tax planning much easier for many couples, advice should still be sought to ensure that wills are drawn up in the most effective manner.
Therefore, whilst this Budget appeared to be more doom and gloom than anything else for the small business owner, moves to simplify some areas of anti-avoidance legislation prove that there is still room for good, sound tax planning advice without which you may find your overall tax bill creeping up.
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