Well, it looked like a Budget and sounded like a Budget – and we even got a draft Finance Bill – so I guess it was a Budget. George made it sound so good, you could almost believe everything is OK – and the dark looks from Vince were straight out of Dickens.
The Chancellor obviously wanted to be helpful but it shows how desperate he was when he made a big deal about increasing the inheritance tax nil rate band from £325,000 to £329,000 – from 2015. My heart rather sank.
I see that the higher rate tax threshold is going down next year. I could have sworn that he said that it was going up – and when I checked, I found that he did. Just after the point where he said “I want to be completely clear with people” he said that “the higher rate threshold will be increased …. so the income at which people start paying the 40% rate will go up to £41,865”. However, this figure includes the personal allowance (er … why? Not everybody gets a personal allowance). What he really meant was that the higher rate tax threshold will be reduced in 2013.
Mr Osborne has clearly taken on board that high tax rates generate lower tax revenues (HMRC have given him the figures) and there was the merest hint that maybe the reduction in the top tax rate from 50% to 45% is only the beginning - but maybe I am clutching at straws.
However, it was not all doom and gloom. In fact there were some really good bits.
For example, the statement about Enterprise Management Initiative Scheme shares and their eligibility for entrepreneurs relief is huge. In the March Budget it was announced that EMI shares did not have to satisfy the 5% test and now the 12 month ownership period has been relaxed as well. The ownership period will now run from the date of grant rather than the date of exercise. This is an excellent development and will make EMI schemes very popular and extremely valuable. After all, the prospect of paying capital gains tax at only 10% instead of income tax and NIC of 52% is going to attract a good deal of attention. (Without wanting to be too cynical, I can foresee that this will soon appear in the press as a "loophole"; you heard it here first.) These new rules will only apply to EMI shares disposed of after 6 April 2013 so it will be a worrying time for option holders who might be forced to exit before then.
We had to wait a bit to learn more about the proposals for UK residential property worth more than £2 million held by non natural persons. (More on this later). Any thoughts that the Annual Charge might have been withdrawn were soon dispelled. The Annual Charge to be introduced in April 2013 will be a completely new tax, and it will be a tax on property, so when the Chancellor said “we won’t introduce a new tax on property”, I got quite excited. What he meant was that he will be introducing a new tax on property. It won’t be a “mansion tax” charging a new tax on expensive property; it will be an “annual charge” imposing a new tax on expensive property. I think he was wanting to be completely clear.
The Statement did contain one really chilling statistic – that the top 5% of earners pay half of the total income tax. I hope this worries Mr Osborne – because it looks seriously dangerous to me.