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The Emergency Budget: an overview of the changes

Although the changes from the Emergency Budget have not been as draconian as was feared, they still represent a dramatic change in the tax landscape and it will take some time for the full implications of this to sink in.

The main practical points arising from it for individuals are as follows:

VAT rise to 20% on 4 January 2011

• Make any purchases of goods or services before that date (including, for example, building work and legal or accountancy work).
• If your business is not currently registered for VAT, you may wish to review this decision. The competitive advantage of being able to charge your customers 20% less may be outweighed by the inability to reclaim VAT on goods that your business purchases.

Income tax and national insurance changes

• In terms of employment income, anyone earning less than £40,000 will be better off as a result of the new budget changes than they were under the old rules (with those on lower incomes progressively better off). Anyone earning more than £40,000 will be worse off (with those on higher incomes progressively worse off).
• Businesses should review their employee remuneration strategies to ensure that they remain as tax efficient as possible in the light of the latest changes.

Capital gains tax at 28% for higher rate tax payers

• If your income and capital gains in any year exceed £43,875 then you will be liable for capital gains tax at 28% rather than 18%.
• It may be advisable to transfer assets to your husband or wife if they earn less than £43,875.
• It is very much in your interests to qualify for entrepreneurs' relief if you are able to do so. If you have an interest in a trading business, take advice.
• Invest through ISAs as much as possible.

Corporation Tax reduction

The gradual reduction in corporation tax rates, combined with increases in personal tax, may make companies more appropriate than partnerships as business vehicles.

Pensions

• It may become possible to leave pension funds to relatives on death without punitive taxes. This would make pensions significantly more appealing.
• Pensions are still likely to result in effective double taxation on those who earn over £150,000.

Tax & Estate Planning specialist Patrick Wooddisse comments, "We knew that the Emergency Budget would result in higher taxation and most people have accepted the need for this in order to preserve the UK's current credit rating. You should take nothing for granted in the meantime in your tax and financial planning."

See Related information for a more detailed overview of the changes taking place.