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KEY POINTS
- Two Finance Bills; first to be passed in a single day?
- First Bill will include a lot of contentious issues
- How will first-time buyers be defined for SDLT?
- Still nothing on residence, income-splitting etc.
So now we know (more or less) how the Government plans to handle the Budget and Finance Bill process this year.
The Budget debates last until 30 March, at which point the House goes into recess until Tuesday 6 April.
Since Parliament has to be dissolved by 12 April for a 6 May election (and surely, after the Chancellor’s party political broadcast of a speech, no one expects the election on any other day), it realistically needs to be announced before they return.
That leaves at most four days to rescue any remaining legislation, and normally the House does not sit on Fridays. As in 2005, therefore, the Finance Bill will probably go through in a single day, probably 6 or 7 April.
Which Bill?
That is exactly what I hoped would not happen, in my article last week, The dating game.
However, we do at least have a clear indication this time of which provisions are to be included in the one-day Finance Bill, and which are to be kept for the second bill after the election – because it is spelt out in the Budget notes.
The difference, of course, between this year and 2005 is that there could never have been time to get a proper Finance Bill through before the election this year, as Parliament has to be dissolved by early May regardless; in theory in 2005 it could have gone on for another year.
Looking at what the notes say, it is unfortunately not the case that the first bill only contains uncontentious legislation.
The general idea seems to be that legislation on which there has already been consultation (even if it is being amended) will be in the first bill, as will all the giveaways and some of the anti-avoidance provisions, with only a smaller number of more complex provisions held back for the second bill.
So all the tax rates are in the first Bill, as you would expect, but so too is the bank payroll tax. This is presumably because the return has to be made and the tax paid by 31 August, but the Chancellor can point to the draft legislation which was issued with the pre-Budget report to show that there has been discussion and consultation.
However, that has been significantly amended, and it is not clear that forcing the new legislation through with virtually no debate is the right approach.
Business tax is dealt with in Richard Curtis's article, but again it is worth looking at which provisions are dealt with in which Bill. A provision to allow loan relationship rules to be modified for changes in accounting standards is in the first Bill, but since it is an enabling power that should not be difficult to draft.
The increase in annual investment allowance and a technical provision on ‘cushion gas’ are in the first bill, the first because it is a giveaway and the second because it has been consulted on.
On the other hand, the changes to enterprise investment schemes and venture capital trusts have to wait until after the election.
These changes extend relief to shares listed on EU exchanges rather than just UK ones, and will require the company to have a permanent establishment in the UK but will no longer require the trade to be carried on wholly or mainly here.
The latter provision will also apply to enterprise management incentive companies. Since the changes are required by European law, I’m sure a possible incoming Conservative government will just love the fact that it may have been left to them to legislate this…
On the other hand, it is perhaps slightly surprising that the equivalent extension of gift aid to EEA-based charities will be in the first Bill.
Given that this Government has a good record of supporting tax relief for charities, it is also surprising to see that the number of in-year repayments of gift aid, and the amount of each claim, is to be limited in future.
First-time buyer
The most eye-catching giveaway is the stamp duty land tax £250,000 nil rate for first-time buyers, provided completion takes place in the next two years. At which point I should introduce you to my daughter, Clare.
She lives with her partner in a shared-ownership flat. He bought it before she moved in, so only his name is on the deeds. If she now pays for a further stake in the property, increasing the total percentage of the property that they own, is she a first-time buyer?
Or if they decide to sell that flat and buy another, will they qualify if her name alone goes on the deeds, but not if his does?
Presumably if she then gave him a share in the property at a later date that could not have an effect on the SDLT position.
It’s tempting to say the Government has not thought this out, but I suspect it has simply concluded that it’s a vote-winner and that is all that matters.
Some technical provisions do, thankfully, seem to have rightly been deferred to the next bill, even though they are going to be welcomed.
Where trusts have been set up by a company as part of an arrangement with its creditors for victims of asbestosis, there was a possibility of IHT, CGT and income tax charges applying.
An exemption is to be introduced, backdated to 6 April 2006, which needs to be properly considered in the committee stage of the second Bill.
Likewise, the provision requiring settlors to pay any repayments of tax they receive on trust income back into the trust, resulting in them being disregarded for IHT purposes, needs to be subject to proper scrutiny.
Pensions and shares
The core of the legislation for pension tax relief withdrawal for those with income over £150,000 a year is to be in the first bill.
This will give the industry as much time as possible to get ready before its introduction in a year’s time, but it means that a complicated provision will go through without the debate that one would have expected in a normal year, when it might well have been considered by a committee of the whole House.
However, the full summary of responses, also published as part of the budget, reveals that quite a lot of detail will be introduced later, generally by regulation and after consultation.
So, for example, the basic principle of valuing benefits earned each year by a two-way table based on age and normal pension age will be in the first Finance Bill, but the table itself will be introduced by regulation later.
A range of anti-avoidance provisions are going to be in the first bill. In particular, there have been some employee share schemes which have attracted HMRC’s attention.
Some company share ownership plans (CSOPs) have been granting share options over shares in companies which are under the control of a listed company, designed to deliver geared growth in excess of what would normally be expected.
By contrast, some trustees of share incentive plans (SIPs) have been acquiring shares in the company which are then stripped of all their real value by a change in the company’s share capital before being transferred to the employees.
The point of this is for the company to claim a tax deduction for the amount originally given to the trustees to buy the shares. Both are to be stopped for shares issued on or after Budget day, but CSOPs will be given six months to amend their scheme rules if necessary.
Finally, the changes to Revenue powers, dealt with in more detail in Allison Plager's article, will be split between the two bills.
The rules on offshore tax evasion and security for PAYE will be in the first bill, the penalties for late filing will be in the next. However, regardless of which bill they are in, they do not apply until April 2011 at the earliest.
Missing links
It is worth considering what is not in either bill. ‘Anything interesting’ might be the cynical response, although that can’t really be much of a surprise in an election year.
You do also have to hand it to the National Hairdressers’ Federation, for whom the major issue of the budget was that their persistent but forlorn campaign to reduce VAT on haircuts to 5% had been ignored yet again.
But, more seriously, there was nothing on residence, despite the complete shambles in which we currently find ourselves when trying to advise clients.
In a budget which was supposedly intended to support small businesses, there was no commitment to finding a single and simplified system of business taxation, which would make the choice of business vehicle tax neutral.
There was nothing on income splitting, though it is inconceivable that it will not have to be reconsidered once the 50% rate is in force.
It was, in short, a Budget designed to be passed into law during an election year when all the attention is on the truly horrific state of public finances, there is no money to bribe electors, and no time to consider legislation properly.
I should really be praising it for not adding to the complexity of tax legislation, although I suspect the pensions changes will add their fair share of pages to your Yellow Book.
It is probably a mark of how addicted we have got to constant change in the tax system that I actually feel rather let down by this rather mundane set of tax proposals. This is the way the Parliament ends, not with a bang but a whimper.
