Seeing the bigger picture

For private investors the Budget is something an early Christmas present with significant cuts in capital gains tax likely to save around £600m a year in taxes. From April the CGT rate will fall from 40% to 35% after one year on a steady taper to 30% after two years, 20% after three years and 10% after four years.

Brown has also extended the definition of unquoted companies to allow those listed on the Alternative Investment Market to share in the new taper relief for disposing of business assets. The move is also designed to encourage more flexible and wider investment and will cover those who own shares in their own company plus investors with a 5% holding in a new business.

According to Brown, Britain can now claim to be ‘the place’ for business start-ups with the lowest ever rates of capital gains tax. And for some its certainly welcome news, particularly investors in unquoted shares and high earning portfolios.

But for the ordinary and the poorer portfolio investors the benefits won’t be quite so obvious. ‘The changes really throw into sharp relief the poor portfolio investor who now has to deal with an even more complex CGT regime,’ says Maurice Parry-Wingfield, personal tax specialist at Deloitte & Touche. ‘The 5% portfolio threshold also excludes most ordinary investors with very few able to actually afford 5% in shares in the larger companies.’ Parry-Wingfield says the chancellor should have simplified the GDT regime rather than lowering it in favour of the higher range of investors.

Mukesh Gunamal, chairman of ACCA’s taxation committee agrees that the CGT regime needed a radical overhaul. But he says the chancellor’s changes failed to recognise the ‘disproportionate compliance burden placed on the tax payer’.

Still in his investment and enterprise-boosting mode Brown also announced the continuation of the Save As You Earn (SAYE) share scheme, which currently has 1.7 million members. The industry had feared that it would be abolished with the introduction of the All Employee Share Scheme but the two will run together.

The All Employee Share Scheme will offer greater levels of investment and allows employees to buy up to £1,500 of shares a year which the employer can match with up to £3,000 of equity. Employers can also give an additional £3,000 of free shares linked to performance. Specific companies such as high tech start-ups will be allowed to offer shares of £100,000 for up to 15 employees and will also benefit from the 10% CGT taper for asset disposals.

Sandy Pepper, partner at PricewaterhouseCoopers says: ‘We welcome the decision to keep both SAYE and CSOP as the new All Employee Share Ownership Plan, which we anticipate being very successful, is as yet untried in practice and will require a period to become established.’

But Brown failed to deliver any changes to national insurance liabilities for employee share schemes. Internet companies in particular have been left with multimillion pound bills after offering share option incentives for employees. The Inland Revenue says it will only ‘consider’ legislation to give employers more certainty about their future NI liabilities.

Low use and environmentally friendly company car drivers will also benefit

from Brown’s budget with potential tax savings of 35%. From April 2002 the company car tax will be based on a percentage of the car’s value plus the level of its carbon dioxide emissions, rather than mileage. The maximum charge will be 35% of the car’s price which will hit the high mileage executive driver hardest.

‘A high mileage driver would be worse off by 35%, a mid range driver would be in the same position but would be worse off by 2004/05,’ says Alison Haynes, partner at Deloitte & Touche said. ‘But for the person driving a car with a list price of approximately £19,000 and a Co2 emission rate of 202, a perk car driver will be better by around 35% in 2002/2003.’

Haynes urges company car drivers to take Co2 emission into consideration plus cost when they begin choosing a new vehicle.

Brown’s Budget has also targeted corporate travellers. Air passenger duty rises from £10 to £40 for those visiting destinations outside of Europe. For business and first class travelers within Europe the tax will be £20, although it has been slashed to £5 for economy flights. But if the latest survey figures from American Express are anything to go by this will have a limited impact with an increasing number of corporate travellers opting for low cost ‘no frills’ flights.

BUDGET 2000: main points
New Company car tax scheme based on Co2 emissions and the price of vehicles to replace mileage – good news for environmentally-friendly car drivers.

New tapered rate for corporate gains tax reducing cost of business asset disposals from 40% to 10% after four years.

New All Employee Share Scheme allowing employers to reward workers with share options.

Air passenger duty for business travellers increased from £20 to £40 for flights outside of Europe.

£3,000 increase in inheritance tax threshold to £234,000. The value of any estate above this amount will be taxed at 40%. This means that about 4% of all estates in 2000-01 will pay tax, 23,500 compared to 21,000 in last year. The increase in taxable estates, despite the increase in the threshold level, is due to increasing property prices.

Ceiling on Individual Savings Accounts kept at £7,000 for another year. Around six and half million people have set up ISAs. But this one-year continuation is tempered by the fact that nearly half of all investments go into cash deposits rather than higher yield stocks and shares. ‘While investors should be encouraged to utilise the additional allowance announced by the Chancellor they should be also consider investing in equities which are more in line with PEPs than TESSAs,’ said Frank Williamson managing director of Panell Kerr Forster financial planning.

The earnings cap for personal pensions has risen from £90,600 to £91,800 under the annual formula linked to the RPI. This means that the higher earners will be able to use an extra £1,200 of their salary when calculating personal pension contributions for 2000-01.

Budget special

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