Budget News for Practitioners <br>Topics covered in this section are listed below. <br> <br>Invest...


Headline:	Budget News
Description:	Budget News for Practitioners Topics covered in this section are listed below. Investment in the film industry Road fuel gases Landfill tax increased to standard rate Business premises renovation allowance Reform of company vans re: private use Company car tax Simplification of the taxation of pensions - added 17/03/05 Maternity leave Nursery vouchers Child trust fund ISA allowance Income tax charge on 'pre-owned assets' Modernisation of trusts ------------------------------------------------------ Investment in the film industry The tax relief for British qualifying films, which is due to expire on 1 July 2005, will be replaced by a new relief for incurred production expenditure that can either be offset against profits or surrendered to the Treasury for a cash payment. The new relief will typically provide filmmakers with 20% of the production budget compared with the 15% they typically receive under the existing s48 relief. The Government is currently reviewing the treatment of co-productions, involving production expenditure in the UK and outside the UK, with a view to creating a tighter definition of British Qualifying Status. The Government also wishes to consider the scope for the new relief to improve the proportion of British films produced being distributed. Following further discussions with the industry and other stakeholders, full details of the new relief will be published in the summer. ------------------------------------------------------ Road fuel gases In line with the commitment in the 2003 pre-Budget report to offer three-year rolling certainty for alternative fuels, the duty differential for liquefied petroleum gas (LPG) will be 39.7p/l for 2005/06 and 38.7p/l for 2007/08. The differential for natural gas (NG) will be kept at 41p/l until 2007. ------------------------------------------------------ Landfill tax increased to standard rate The Government announced in its 1999 Budget that the standard rate of landfill tax, which applies to active waste (which gives off emissions) disposed of by way of landfill in a licensed landfill site, would increase by £1 per tonne each year from 1 April 2000 until at least April 2004, by which time it will have reached £15 per tonne. In its 2002 pre-Budget Report the Government confirmed that it would fulfil this commitment and announced that, following consultation, the standard rate of landfill tax will be increased by £3 per tonne in 2005/06, and by at least that amount in the following years, on the way to a medium-to long-term rate of £35 per tonne. The standard rate of landfill tax will be £18 per tonne in 2005¿06. ------------------------------------------------------ Business premises renovation allowance As announced in the pre-Budget Report, the Government will introduce, subject to state aid approval, a Business Premises Renovation Allowance Scheme. The scheme will provide 100% capital allowances for the costs of renovating business properties in enterprise areas that have been vacant for at least a year. The scheme will be introduced in 2005. ------------------------------------------------------ Reform of company vans re: private use A major deregulation of the company van rules was announced in the 2004 Budget. From 6 April 2005, a nil charge will apply to employees who have to take their van home (for example, who are on call) and are not allowed other private use. As a transitional measure, the benefit in kind charge of £500 (and £350 for older vans) will be continued for all vans where private use is unrestricted. From 6 April 2007, the scale charge for unrestricted private use will increase to £3000 and if an employer provides fuel for unrestricted private use an additional fuel charge of £500 will apply, taking 85% of those who currently pay a charge out of the system. This will not apply to the self-employed. ------------------------------------------------------ Company car tax When a car is made available for an employee's private use a taxable benefit will arise based on a percentage of the manufacturer's list price. The benefit percentage for 2005¿06 is 15% of the list price where the CO2 emissions are 140g/km or less. Diesels are subject to a 3% supplement unless they meet Euro IV emissions standards. The benefit percentage is capped at 35% for petrol and diesel cars. The 2004 Budget also froze the 2006/07 emissions base at 140g/km. The benefit percentage is also used to calculate any fuel benefit where fuel is provided for a private purpose. The benefit percentage was applied to a set figure of £14,400 in 2004/05. The set figure remains at £14,400 for 2005/06. ------------------------------------------------------ Simplification of the taxation of pensions (REV 05) The new simplified regime comes into effect on 6 April 2006 and the relevant legislation is contained in the Finance Act 2004. Further simplification measures, aimed at increasing flexibility, were announced in the Inland Revenue Technical Note issued on 16 February 2005. Building on the measures already introduced, there will now be an additional measure to ensure that the provision or modification of scheme rules will operate so that pension schemes have until 6 April 2011 to make changes to their rules. There will also be further minor and technical provisions. There will also be consultation with regard to the interaction of lump sums taken and escalation and dependants¿ pensions and the position with a purchased lifetime annuity. An announcement on any intention to change these rules in the Finance Bill 2006 will be made by the 2005 Pre-Budget Report. It is also confirmed, by way of an appendix to the Regulatory Impact Assessment (RIA), that the additional measures do not affect the costs or impacts as set out in the original RIA ¿ Simplifying the taxation of pensions published in April 2004. ------------------------------------------------------ Maternity leave The Government announced that paid maternity leave will be extended from six to nine months with effect from April 2007 with the aim of increasing it to 12 months by the end of the new Parliament. It is also intended to allow the transfer of part of the allowable paid maternity leave from the mother to the father before the end of the next Parliament. ------------------------------------------------------ Nursery vouchers Nursery vouchers given to employees will be free of tax and NICs from April 2005 as long as they are worth no more than £50 a week. Employers will have to record the name of the person caring for the child - i.e. the recipient of the voucher, and ensure that this person has been approved as a carer. Staff will have to keep their employers up to date with their childcare arrangements, and if they fail to do this, or the employer does not notice that a carer's approval has expired, then there will be extra tax and NICs to pay. ------------------------------------------------------ Child trust fund In the Pre-Budget Report, child trust fund consultation on age 7 top-up payments (PN 5), the Government announced a consultation on a further universal payment of £250 at age seven, with children from low-income families receiving £500. There will be no tax to pay on the income or gains arising on the moneys in the account, provided the person entitled to the fund is UK resident at the time the fund is paid out. This makes CTFs attractive and a tax efficient way of saving. ------------------------------------------------------ ISA allowance The annual ISA allowances of £7,000 (£3,000 cash) has been extended until 2009. ------------------------------------------------------ Income tax charge on 'pre-owned assets' An income tax charge will be imposed from 2005/06 on the annual benefit of using or enjoying an asset that was once owned by the user (and has not been sold at an arm's length price for cash), where such use is enjoyed free of charge or at below market rent. The charge will also apply to assets which the user did not formerly own but which were purchased with funds provided by the user. Both tangible and intangible assets will be within the charge. The rules will quantify an annual taxable value for the benefit ¿ modelled on the existing rules for taxing benefits in kind provided to employees (precise details are still to be finalised), with relief given for any amount paid by the taxpayer for the benefit (e.g. rent). No income tax charge will apply where the total taxable value for any tax year is less than £2,500. If the asset in question still forms part of the taxpayer's estate for inheritance tax purposes, under the `gifts with reservation¿ rules, the asset will not fall within the income tax charge. In addition, the charge will not apply where: the asset ceased to be owned before 18 March 1986; or the asset is now owned by the taxpayer¿s spouse; or the taxpayer was formerly owner of the asset only by virtue of a will or intestacy subsequently varied; or the use or enjoyment is merely incidental. The charge applies to UK residents. For those not domiciled in the UK, the charge is restricted to their UK assets. For those becoming domiciled in the UK, the charge will not thereafter apply to any non-UK assets which they ceased to own before acquiring UK domicile. Pre-existing arrangements will escape the new charge if they are dismantled, or the user begins paying full market rent, before the start date of 6 April 2005. Alternatively, a taxpayer may elect, by 31 January 2007, to remain outside the income tax charge (in relation to the asset(s) specified in the election), but in that case the asset in question will be treated as part of their estate for inheritance tax purposes while they continue to enjoy it. The Government has been clear since the outset of consultation that the income tax charge on pre-owned assets, which takes effect from April 2005, will not affect legitimate transactions between family members. The Government therefore confirms that the charge: will not affect parents or grandparents who have helped their children or grandchildren onto the property ladder will not affect transactions between married couples will not apply where the benefit is incidental will not apply if the assets still count as part of the taxpayer¿s estate for inheritance tax purposes will not apply if a person who has used a contrived avoidance scheme to remove their property from the inheritance tax system opts to bring the property back into their estate for inheritance tax purposes is not retrospective as it will not take effect until April 2005. ------------------------------------------------------ Modernisation of trusts The new regime will take effect from April 2005. The changes are limited to UK resident trusts and have no bearing on the taxation of offshore trusts. Key features of the new system include: the income tax rate applying to trusts will no longer depend on the nature of the trust. Instead it will depend on the type of income and how quickly it is distributed to beneficiaries where the income is distributed within the tax year, or by the following 31 December, the trustees will face no further tax on income which they receive net of tax, and will face tax at the basic rate on income they receive gross where the income is not distributed within this timeframe, the first £500 will be dealt with as above, and any excess will be taxed at 40% for all trusts, capital gains, after deducting the annual exemption, will be charged at 40% beneficiaries are liable to tax on income distributions from trusts and are given credit for tax paid by the trust. Where the beneficiary has no other taxable income, he is currently entitled to claim a repayment in respect of his share of the tax borne by the trust currently, tax paid by the trustees on income is pooled and used to pay out income with tax credits to beneficiaries. Under the new rules, these `tax pools¿ will be frozen. Beneficiaries will still be able to receive income out of these `pools¿ with tax credits but, after a transitional period of three years, will only be able to use the credit to offset tax payable. Tax refunds will not be given; which is similar to the current system for UK dividends for a limited transitional period this measure preserves the existing treatment of income accruing before the reform, whilst encouraging trusts to pay out future income more rapidly trusts for the disabled and for orphans under 18 will be able to elect irrevocably for the tax treatment of income and gains to be based more closely on the circumstances of the beneficiary.
Date:	16.03.2005
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