Against the background of the marked slow down in the economy and the fear of rising inflation resulting from the increase in oil prices, the Pre-Budget Report (PBR) 2005 focused very much on economic forecasts. While there were some tax announcements, and a continued tightening on avoidance schemes, the PBR did not contain any significant changes to fiscal policy.

The major surprise was on pension tax reform. It was announced that self directed pension schemes will not now be permitted to invest in residential property or in assets such as fine wines, classic cars and antiques when the reforms come into effect on 6 April 2006. While this may help to dampen fears of distortion in the residential property market, it is no compensation to the individuals and pension companies who have spent millions of pounds in preparing for this change.

Other measures introduced include:

• The abolition of the zero rate of corporation tax, sweetened by an increase in first year allowances for small businesses from 40% to 50% from April 2006.

• Action to prevent the abuse of obtaining tax relief by recycling lump sums taken from pension funds as further contributions.

• The spreading of the tax charge for service businesses under UITF 40 over a period of 3 years, increasing to 6 six years for the worst affected.

• The announcement of consultation into the planning gains supplement to capture increases in land and property valuations following the granting of planning permission.

• Anti-avoidance measures to block schemes using capital losses, corporate intangibles and the use of offshore settlements.

If you would like to discuss any of the points arising from the PBR further, please contact Mark Sheen.

23/09/2009