This afternoon we finally had the Emergency Budget that everyone had been tensely waiting for. A cloud of trepidation filled the Commons as the young, (well 39); Chancellor who many feared could not deliver such a budget got to his feet.
As someone who was critical of “Boy George” I must say he delivered his speech with courage and conviction. It was a fine performance and blew away many of the doubters. But what of the content?
The key proposal that many of our clients and introducers alike were most concerned with were proposed changes to Capital Gains Tax. As the Chancellor himself conceded, he had considered and reviewed many suggestions around marginal rates of tax and taper reliefs, with many fearing that a 40% rate was a possibility.
The result however, seemed to be a sensible middle ground. There is no change for basic rate taxpayers, whilst for higher rate taxpayers the rate has increased to 28% from midnight tonight, and the exemption rate stays at £10,100.
For many property investors this is not the issue that many feared it could be. First of all, and this is a key point, many professional landlords have various losses and items to offset against tax, so actually may not hit the higher rate tax bracket at all. For them then, this means business as usual.
Secondly, 28% can be considered a manageable amount and will simply be taken into account when the investment decision is made in the first instance. Also, many investors who see rental income as a long-term pension income top-up are unlikely to change their actions because of this.
So the Chancellor does seem to have hit a comfortable middle ground, raising more from a tax without many really suffering or causing the buy-to-let market to disappear overnight. The Chancellor says these changes “would protect the majority of taxpayers, keep the top-rate of CGT in line with the UK’s international competitors while keeping a simple system that reduces the incentives to convert income to capital gains.”
Meanwhile, the 10 per cent CGT rate for entrepreneurs which currently applies to the first £2m of qualifying gains made over a lifetime will be extended to £5m to promote enterprise.
The second key measure, apart from reversing the additional levy on cider of course, is the much-expected rise in VAT from 17.5% to 20% from January 2011. Whilst deeply unsatisfying this was seen as unavoidable by many and at least there was no change to the current zero rated VAT items.
The Chancellor has made some bold moves in trying to cut the budget deficit by more and quicker than expected, with only 23% of these cuts coming in the form of tax rises.
This means a whopping 77% is to come from proposed cuts, so expect demonstrations coming to a local area near you as communities fight for their own services.
Whilst the real details will emerge over the coming weeks, other interesting titbits are a cut in Corporation Tax to 24% by 2014 to try to encourage business, a proposed unilateral UK Bank levy on the balance sheets of UK banks & building societies, as well as the UK operations of Banks abroad. There is also a proposed move to end the compulsory purchase of pension annuities by age 75 to allow for more flexible pension planning.
So, as Nick Robinson says in his BBC blog, “This is what George Osborne meant when he spoke of “the age of austerity”.”
As our resident City slicker, Rob Gill comments “The immediate judgement of that harshest of all critics, the markets, has been both reassuringly undramatic and marginally favourable, with stock markets edging higher and bond yields lower following the budget announcement”.
For the longer term, whether you agree with the changes and cuts or not, the truth is, however painful, something needed to be done and at least we cannot complain that this Chancellor has held back.