Our predictions:
The focus is unlikely to be on further tax relaxations: the government cannot really afford to lose any further revenue and it is doubtful that there would be scope for tax reductions on a scale that would have any appreciable effect in getting the economy moving. Furthermore, as observed above, the Chancellor nailed his tax colours to the mast in November’s PBR.
Rates of tax and allowances
These are being increased above inflation to provide further fiscal stimulus. The addition to the allowance, over and above inflation, is £130 so this only equates to an annual tax saving of between nothing for the lowest-paid and £52 for the highest paid.
Tax credit restriction removed
The restriction on tax credits on overseas dividends to holdings of less than 10% is to be removed, introducing a welcome element of consistency.
Inheritance Tax and Nil Rate Bands
From 6 April the inheritance tax nil-rate band will be increased to £325,000 per person. The band for the following year, 2010/11, is also already known: £350,000.
Holding the smaller companies’ rate of CT down to 21% will provide a modicum of relief to those companies that remain profitable in the recession.
Relief for interest
Tax avoidance will feature high on the list of announcements. There is one certainty, that is the proposed change to the rules for deduction of interest in Income Tax Act 2007 section 348. The new rules announced on 19 March 2009 will completely disallow interest tax relief in any case where an arrangement is made that produces a 'post-tax advantage'. The targets of the change are arrangements which are set up only for the purpose of creating tax allowances due to interest charges. They are intended only to catch 'avoidance schemes' but no exemption is provided for bona fide commercial transactions. The absence of any exception for genuine commercial transactions threatens bona fide refinancing transactions such as land sale and lease-back. At present the proposed amendment to section 384 is not restricted to schemes entered into for the purposes of tax mitigation but extends to any finance transaction that relies for its viability on receiving tax relief for interest paid unless there is no net benefit in simple cash terms.