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  1. Wealth
March 24, 2010

Budget 2010: Reaction and Expert Analysis

By Spear's

Hear what wise heads have to say about the Budget here

Highlights: Stamp duty up to 5% for houses over £1m. Borrowing £167bn this year instead of PBR’s £178bn. 50p tax rate stands for >£150,000. Relief for entrepreneurs raised to £2m. More tax information exchange agreements – including with Belize… No great economic shakes, but very political.


From Chris Groves, Withers:

The Chancellor acted today to bring the UK in line with recent European court rulings on charitable donations. Mr Darling confirmed that all UK tax reliefs will be extended to donations to any charity in the European Union – subject to satisfying various conditions. 

This is very welcome news for philanthropists and will certainly facilitate increased charitable giving throughout the EU. Cross-border philanthropic donations had previously been mired in uncertainty and red tape.

For UK-based charities, this development cuts both ways. It means that donors from across the EU can give tax-efficiently to UK charities – giving charities access to a much broader range of potential backers. On the flip side, UK charities must now compete with their EU counterparts for funds as there is no longer a tax incentive for UK philanthropists to direct their giving to UK-based charities.


From Sophie Dworetzsky, Withers:

Yes, the Budget was unexciting, but in some ways that’s good: it heralds a return to stabiility, an end to tinkering around the edges.

The increase in stamp duty [up to 5% for houses over £1m] doesn’t come into effect until next April, so in the short-term it will stimulate the upper end of the market. It only applies to residential properties, so it will be interesting to see how people allocate their costs and such.

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What I’m surprised by is the freezing of Capital Gains Tax [at 18%], giving a differential [from the higher rate] of 32%/ There’s nothing in the documents which I’ve seen to indicate any anti-avoidance rules for those trying to turn their income into gains.


From Ronnie Ludwig, Saffery Champness:

What is most notable for Spear’s readers is that 60% of the tax rises are going to be paid for by the top 5% of earners. It’s clearly driven by ideology.

There was nothing in it of massive consequence. The most significant changes related to businesses – the £2.5bn for business to invest in its skills is entirely paid for by the bank payroll tax (they say).

The doubling of the tax threshold for entrepreneurs (to £2m) will encourage investment in trading businesses, but I’m surprised he didn’t tinker with CGT.

I thought it was a very political Budget, designed to try to win votes – it’s window-dressing.


From David Kilshaw, Private Client Division, KPMG:

It’s quite clear that most of your readers are going to take the brunt of the hit. It’s not a good time to be a wealthy home owner. We’ve calculated that a wealthy house owner who earns £110,000 could be as much as £20,000 worse off. Keeping the nil rate of inheritance tax at its existing level will have particular problems for lots of estates. The pain is going where we’d expect it to go.

Regarding freezing capital gains tax: tax alchemy is back on the agenda. People are trying to get their returns as capital now – nobody wants income anymore.

It’s not really a budget, it’s a political statement.


From Andrew Whelan, Ermitage Group:

Chancellor Darling had the opportunity to present a fiscal budget that would have been prudent in its structure, however I think unfortunately he has bowed down to pressure from Gordon Brown and pushed the envelope too far in terms of trying to appease the electorate with an impending election on the horizon.

If the UK economy meets his deficit target this year I will be very surprised given how spectacularly they have got this wrong in the recent past! In truth, regardless of his comments and actions Ermitage believe that there is a high probability of a double dip in the UK economy given the fact that the current fragile recovery is heavily reliant on both consumer spending and earnings coming through as anticipated.

Consumer spending is reliant upon a strong feel-good factor and given the current stresses in the employment market job security is perceived to be fragile and thus consumers are focussing on savings rather than spending!

Earnings have rebounded strongly in 2009 on the back of the significant cost cutting and inventory de-stocking that took place in 2008. If demand fails to exceed this re-build of inventories then earnings will disappoint and with equity markets already having priced in such a recovery the risk are only to the downside. Finally, statistically 8 out of the past 10 recessions have double dipped!


From Louise Somerset, RBC Wealth Management

The last Budget before an Election has often been seen as an opportunity for the Chancellor to ‘woo’ voters with their own money. When times are hard, Chancellors sometimes take the opposite approach using an austerity Budget to demonstrate their toughness. Mr Darling appears to have taken a middle path – there are no significant giveaways, but no tough new measures either. In the short term at least it will come as a relief for many who have been worried about capital gains tax and inheritance tax, in particular.

The limited nature of today’s announcement immediately raises the question of when the real changes will be made.  Wealthy taxpayers are unlikely to look at this Budget as being as bad as it gets, and I expect to see plenty more clients wanting to act in the next few months to lock in current tax rates before things possibly get worse.

The current difference between income tax rates of up to 50% and capital gains tax at 18% is now so significant that many people will be putting a great deal of energy into ensuring they realise capital gains rather than income.  It isn’t easy to do this, but if you can, the savings are obvious.

The doubling to £2 million in the amount of capital gains that can benefit from entrepreneur’s relief from CGT (taxed at 10% only) will be very welcome to the business community, although the cynics might say that the benefits will be limited in the current economic climate.

As the 50% tax rate now begins to bite, we will see whether the gamble on high earners will pay off. My clients are sending mixed signals about leaving the UK, but the combination of higher taxes and the annual £30k remittance charge is certainly sending some of the higher earning non-doms out of the country. Recent reports show a 25% reduction in the number of non-doms moving to the UK. This is not wholly tax driven, but a fear of high taxes is certainly a factor. It was not surprising that there are no announcements about residence or domicile in the Budget, but it is disappointing.

The concept of residence in particular is currently so confused that it is very difficult for anyone entering or leaving the UK to know where they stand. This goes against the basic principle that taxpayers should have certainty about their affairs. The problem with the current situation is not that a few super rich entrepreneurs may have to pay UK tax even though they have moved overseas, but that many ordinary workers with connections to the UK no longer know where they stand.

The freezing of the IHT nil rate band is disappointing, but was anticipated.  However, even with stable house prices, the taxation of the family home on death remains a concern for many, and it is a pity that yet another year has passed without this issue being addressed. That said, it was never likely that IHT cuts would be seen as a good area for spending money, even just before an election.

Every year the issue of tax avoidance is discussed. A good first step would be to make legislation genuinely simple.  Legislation that’s easy to understand is usually easier to implement, as well as often being more difficult to avoid.

It has already been announced that, from April, tax evaders will be “named and shamed” on a Government website.  This feels like a gimmick to me.  Tax evasion is illegal, and should be prosecuted.  If that doesn’t put offenders off, will they really care about having their names published?


From Lee Robertson, CEO, Investment Quorum:

A budget from the Chancellor which lived up to its billing as ‘sensible’.

Of particular interest to high net worth investors will be the increases in ISA allowances as these can now be used to accumulate very decent capital sums alongside pensions which are continually tampered with. Stamp Duty Land Tax increasing on properties over £1m but parents may wish to explore methods of property purchase for children of values under £250,000 where it does not apply.

Inheritance tax allowances frozen for next four years so careful planning required.  Some interesting reliefs for entrepreneurs but the 50% top tax rate is going ahead so there’s scope for exploring the various tax mitigation strategies.


From Tim Gregory, Saffery Champness:

Notable changes include:

A doubling for two years of the amount below which Stamp Duty Land Tax is not charged on residential property purchases to £250,000 for first time buyers, and an increase of the tax rate to 5% on the purchase of residential properties costing more than £1 million.

The risk here is that the currently slow property market at the higher end will slow down further, and that this will work its way down the market – making properties at the lower end of the market more expensive. That clearly would defeat the purpose of the Chancellor’s plans to help first time buyers.

ISA limits to increase annually in line with inflation. This change is long overdue, and arguably is a slight nod towards the need to encourage long term saving by the better-off who may have been hit by the changes to tax relief on pension contributions.


From Josh Spero, senior editor, Spear’s:

The political posturing here was shameless, and Spear’s readers will see through it – right into their bank accounts. Darling has persisted in his soak-the-rich strategy: 50p tax rate above £150,000 is staying and stamp duty for houses over £1m goes up from 4% to 5%. Spear’s readers who have been following our leaders will be well aware that Brown has been taking this tack for some years now, despite understanding how HNWs contribute to the economy, yet now they’re making Britain a lot more hostile.

However: there was a very welcome measure targeted at those soon to become rich: capital gains relief on the profits of entrepreneurs has been doubled to £2m, now taxable at 10%. Spear’s has been a constant cheerleader for entrepreneurs in all fields, and so we welcome this.


From Freddy Barker, head of the Spear’s Research Unit:

73.6% of the governments tax take comes from three sources: income tax, national insurance contributions and VAT. Yet in another gratuitous political move, Darling (read Brown) has failed to change any of the headline measures.

HNWs should rejoice that within 43 days, Britain may have a new leadership with the courage to tackle our structural problems. With national debt standing at 56% of GDP (ignoring off balance sheet liabilities that would make the Greeks chuckle) and more spent every year on debt interest payments than on the national transport system, we need reconstructive surgery fast.

What’s most disturbing is that the Scottish mafia have failed to cut government spending. The 20th century’s slow crawl towards a welfare state – motivated by buying votes, not a moral crusade – rumbles on. It is a sure sign that we have lost perspective on what “the system” is for. To give but one example, the public have become used to paying ever higher taxes but to what end? How many of our 60 million citizens know that income tax was brought in to defeat Napoleon or that inflation, via fiscal drag, is a tax.

Today’s budget shows that we are in serious danger of wasting the financial crisis. Whilst the public remain sceptical of power structures – be they the Houses of Parliament or the big name banks – politicians should grab the opportunity to reshape the nation, not sidestep difficult decisions and postpone Armageddon till the winter.

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