Part 1 of a round-up of the 2003 Budget and Finance Bill looks at various taxes including the new stamp duty land tax


The corporation tax main rate is 30 per cent. The small companies’ rate is 19 per cent for companies with taxable profits between £50,000 and £300,000 and the starting rate is zero for companies with taxable profits of £10,000 or below.

Marginal relief eases the transition from the starting rate to the small companies’ rate for companies with profits between £10,000 and £50,000. The fraction used in the calculation of this marginal relief will be 19/400. Marginal relief also applies to companies with profits between £300,000 and £1,500,000. The fraction used in the calculation of this marginal relief will be 11/400.

These very low rates of corporation tax point to the desirability (for some at least) of operating in corporate form. But operating against this are the rules which operate under the name IR 35, which look through disguised employments using personal service companies. Nothing to do with the Budget – but the Revenue have been generally succeeding in the courts over the last year in their attacks on “one person companies” under these rules. That can have very nasty National Insurance consequences in particular. That attack is continued this year because the IR 35 rules are extended to intermediaries used by domestic workers. So Nanny Limited is now potentially caught.


From 2003-04, it is all change in relation to what is available for children in particular, with the children’s tax credit and various child related items in various social security benefits (including the Working Families tax Credit) being subsumed into what will be called the Child Tax Credit. Despite its name, this is more akin to a social security benefit and may be paid outwith the PAYE system, directly to the main carer. Its rate depends on the joint income of a couple - and it  will not disappear entirely until that joint income is somewhere in excess of £60,000. Thus there be claims to be made on behalf of people who would not usually consider themselves to be eligible for social security benefits!

It should be noted that the new credits and the fact that they apply so far up the income scale will mean very high marginal rates of tax for some taxpayers, when the effects of actual tax, NI and the withdrawal of credits are all taken into account. The marginal rate of tax/credit withdrawal can rise to 60% on certain slices of income. This will complicate “pure” tax planning even for the moderately wealthy.

There is also now the Working Tax Credit, into which has been subsumed the Disabled Tax Credit, available in effect to give a minimum income guarantee even to the working childless. This may be of  particular interest to employers with  low-wage, part-time workers.

The pension schemes earnings cap continues to rise with inflation, which is not the same as rising with earnings. But it remains well ahead of average (or even high) earnings.

There is a very small extension of the administrative benefits given to charities. Those who wish to donate to charity any part of a repayment they are due from the Inland Revenue – and the gift itself will of course qualify for Gift Aid relief in most cases. This will not come into play until returns for 2003-04 are due.


The annual exempt amount rises, with indexation, from £7,700 to £7,900, with the trust exemption becoming £3,950. Rates remain tied completely to income and corporation tax rates, including the 34% rate applicable to trusts affecting all chargeable gains for trusts (not merely discretionary/accumulation trusts, as is the case for income).

One change announced some while ago, but only coming into effect from 6 April is a change in the definition of a trading company (TCGA 1992 Sched A1 para 22A).  Previously, a company was a trading company if it existed wholly for the purposes of carrying on a trade with non-trading purposes which were capable of having “no substantial effect on the extent of the company’s activities”.  The new test is that a company carrying on trading activities “whose activities do not include to a substantial extent activities other than trading activities”.  This has been taken to mean that anything more than 20% of non-trading will disqualify a company – but it is still far from clear.

But there is, from 6 April 2004,  an important extension in the range of business assets qualifying for the (very much) higher rate of business asset taper relief. Assets used wholly or partly for the purposes of trades carried on by individuals, trustees of settlements, personal representatives or certain partnerships will qualify as business assets irrespective of whether the owner of the asset is involved in carrying on the trade concerned.

What this means is that let property can qualify – and it no longer has to be a letting to an unquoted trading company.  It is the use by the occupier which will determine what qualifies, not the use by an owner. This is important – it illustrates the vital importance, for both CGT and IHT of preparing assets for particular reliefs. Business Asset Taper Relief reduces  CGT to an effective rate of 10%, so it is extremely important.

There are a number of other fairly technical CGT changes. Firstly, a couple of changes are made in the treatment of second-hand life insurance policies.

Secondly, a change is made in relation to share options and the market value rule. This reverses the rather unexpected effects of a Court of Appeal decision  (Mansworth v Jelley [2002] EWCA Civ 1829 ). Certain shares acquired in employee share option schemes are deemed to be acquired at market value. But which market value? The change affects what are the acquisition costs of the shares in these circumstances, so that it becomes the market value of the option when the option was granted, together with any price actually paid to acquire the shares – instead of the market value of the shares at the time of exercise. The effect is generally to reduce the acquisition costs available to the employee shareholder, so that they are properly charged to CGT based on what they paid to get their options and their shares.

The next change reduces the reporting requirements for CGT.  No detailed report will be required where the disposal proceeds do not exceed four times the annual exempt amount and chargeable gains do not exceed the annual exempt amount; but there is still a reporting requirement where allowable losses have to be calculated in order to get the gains, after taper relief, below the exemption. (The last is perhaps an acknowledgement of the complications involved in such calculations.)

There is to be helpful guidance (to be published in due course) to assist with the CGT calculations where people invest in monthly savings schemes in unit trusts. Eventually this will be helpful for gains; for the moment, it may assist with the far more likely losses.

There is a change in the rules to allow a carry back of losses – which is generally only available on that most extreme of tax-planning manoeuvres, death. This will apply where a person has what are termed “rights to unascertainable deferred consideration”. These can arise on a business takeover, although it will not apply where such rights are acquired by companies.

One example of such rights would be “earn outs” . There is another change to such rights, in that they will automatically be treated as a security (which is helpful in rolling over the gain until ultimate realisation for cash), unless an election to the contrary is made. This is generally helpful.

There is a further attack on avoidance using offshore trusts. This affects the “beneficiary charge”, which affects UK domiciled and resident beneficiaries of such trusts. It is an extension of the legislation against what were known as flip flop schemes.


The nil rate band rises to £255,000, in line with inflation.

The constant threats of apocalyptic changes to IHT have produced the usual result - virtually nothing.

There is an interesting exemption for people (or trusts) not domiciled in the UK, in that IHT will no longer be charged on UK  authorised unit trusts or OEICs held by such persons. In passing (and irrelevant to IHT) there are extensions of the ability of such entities to pay interest without deduction of tax.

One other point to mention in this context relates to an announcement that the Government is to review the rules on residence and domicile. While this may have an impact beyond inheritance tax, it clearly will be important to all estate and other tax planning carried out in relation to individuals whose domicile is other than clearly in the United Kingdom. There is yet another consultation paper (of sorts – it is called “a background paper”), without definite proposals. It was thought that the threat to non-domiciliaries had been kicked into the long grass, but it has at least stumbled out into the open again.


A number of changes are made to the taxation of employee benefits. Firstly, an exemption is introduced for payments by employers towards the incidental costs of homeworking. This can be done up to the princely sum of £104 per annum; exemption is still available for larger amounts, but these must be supported by evidence.

Secondly, long service awards – the classic clock – can now be given of a value up to £50 per year for up to 20 years of service, This can represent quite a significant amount – but it must be a thing, not  a sum in cash.

Thirdly (appropriately), third party gifts can be given of up to £250 without incurring a tax liability.

Fourthly, the tax-free amount which can be spent on an annual party rises from £75 per head to £150 per head. This is a maximum, not a compulsory,  amount, sadly.

Finally (and I can hardly believe the paper wasted by the Government, or by myself in the  Journal,  in reporting it) employers can now provide an unlimited number of meals tax free – but only where these are offered as part of official cycle to work days.

There are in addition a number of small changes made to share schemes, company share option plans and  unapproved share options. The effect is to prevent avoidance and further legislation will be introduced to deal with manipulation of values.

Duty on premium is the same as for transfers of land (except special rules apply for premium where rent exceeds £600 annually).

The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5 per cent for 2003-04.

The Budget papers summarised the changes now included in the Finance Bill, as follows:

  • rolling out the modernised stamp duty regime for UK land and buildings, including new compliance and enforcement powers, tougher anti-avoidance measures, and a proposed new regime for leases, from 1 December 2003;
  • subject to further consultation, the existing charge applying to leases will be replaced with a single one per cent charge on the net present value of rental payments, and a new exemption for commercial leases under £150,000 will be introduced;
  • further consultation on the stamp duty treatment of complex commercial transactions including on property held through partnerships, to ensure the charge is levied fairly;
  • from 15 April, changes to strengthen the anti-avoidance measures involving group and acquisition relief clawbacks in the existing stamp duty regime;
  • significant changes for commercial property transactions,


  • from 10 April, relieving stamp duty on all non-residential property transactions in the 2,000 Enterprise Areas;
  • from 1 December, an increased zero rate band upper threshold of £150,000 for commercial property transfers and leases; and
  • a commitment to consider the commercial and residential markets separately in future decisions on stamp duty;
    from 1 December, ensuring that property purchases by individuals funded through alternative financing arrangements are put on a level footing for stamp duty purposes with purchases funded through conventional mortgages;
  • from 1 December, abolition of stamp duty on transactions involving property other than land, shares and interests in partnerships.

Although the effect on most simple transactions will be limited, there will be new administrative requirements, including a new form which will be required in almost all conveyancing transactions. Update, in conjunction with the Inland Revenue,  will be running a series of seminars on the new regime in due course.

The most important immediate change is the expansion of the relief for property in  disadvantaged areas. A useful Statement of Practice has been issued on this subject, which deals with some (although not all) of the problems on this subject. It also includes the appropriate wording for the necessary certificates.  But certainly conveyancers should be checking whether property with which they are dealing can benefit from this – the Inland Revenue website has a most useful search facility.


The Budget and Finance Bill contained a great deal of change in relation to corporate and commercial matters, but much was minor and/or technical.

The important research and development tax credits are further revised and improved. This includes an extension of the companies that qualify for these credits; and increasing (for instance) the amount of payments to employees engaged in such work that can qualify.

There are anti-avoidance rules preventing the manipulation of values on transfers involving capital allowances. As ever with such anti-avoidance, the exact terms will require to be watched to see that they do not catch innocent transactions or require to be dealt with in every sale and purchase.

On the positive side there are to be enhanced capital allowances in various circumstances. Changes are also  made to the rules on accounting periods and other tax rules when companies go into liquidation or administration.


In keeping with the other changes to business tax, there were limited alterations to the VAT rules. The registration limit rises to £56,000, with deregistration possible at £54,000.  There are to be, for some approved importers,  simplified import VAT accounting; and an increase in the flat rate accounting scheme turnover limit to £150,000. To get people into the system, there is to be a small amnesty measure (an Incentive Scheme), whereby belated notification penalties will be waived (although not any arrears of tax that should have been paid).

There is to be an attack on an avoidance scheme involving the delayed payment for the sale of new commercial buildings, where they are paid for more than 3 years after completion (and so are not “new”). There is also an anti-avoidance rule introduced on the tax point for certain ongoing supplies; and a further one on property used for private or non-business purposes. Attacks are also made on certain types of fraud, which may also affect innocent members of the supply chain of certain items (such as computers and mobile telephones).


Mr Brown extended his reputation as a comedian by making what could be identified as up to three jokes during his speech, including one on the abolition of bingo duty. Further opportunities for humour may be rather limited; but the opportunities – and the need – for work by solicitors resulting from the Budget and Finance Bill process  continue to grow.

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