News - Budget 2005: What we already know
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The Daycare Trust, a childcare charity, says this will be worth about 1,000 a year to a higher-rate taxpayer and about 900 to a lower-rate taxpayer who can benefit from the scheme.
The government is also expanding the range of provision that can qualify for childcare help through tax credits, so that nannies and other types of childcare, such as breakfast clubs and childminders who care for children over the age of seven, can qualify.
Tax credits
There were cheers for the chancellor’s announcement to spend an extra 1bn on tax credits in December’s pre-Budget report.
The plan will help the government’s child poverty targets - but middle class recipients of the new credits will miss out.
This is because the government is freezing the “family element” of the Child Tax Credit in 2005/06 at 545 a year.
Maternity and paternity leave
The government announced in its pre-Budget report that it was considering extending maternity leave in 2007 from six months to nine months, with a further extension to one year promised before the end of the next parliament.
Fathers could also be allowed to use some of the leave, giving parents greater flexibility.
Children’s Centres
The government said in Budget 2004 that it will create 1,700 Children’s Centres by March 2008.
These should provide services and childcare places in 20% of the most disadvantaged wards in England by 2007 to 2008.
Child Trust Funds
This new savings scheme will be available from April 2005.
The government will give 250, rising to 500 for low-income families, to babies born since September 2002.
Every fund may also be topped up by families or friends with extra contributions of up to a maximum limit of 1,200 a year.
It is hoped the money, which cannot be accessed until the child is 18 years old, will help towards university costs or for a deposit on a home.
The government has promised that in addition to the initial payment, it will make another payment to children on their seventh birthday of 250, rising to 500 for low-income families. This amount was announced in December’s pre-Budget report.
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Property Investment Funds (Pifs)
The chancellor could give an update on Property Investment Funds (Pifs), a new way of investing in commercial and residential property.
The trusts are already popular in many countries around the world, including Australia and US, where they are known as Real Estate Investment Trusts (Reits).
The trusts offer investors easy access to pooled property investments, which have special tax advantages.
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REIT FACTS
Reits are firms that can trade property assets within their portfolio without paying corporation tax
They allow people with modest means invest in a diversified property portfolio Reits operate in most major western economies including Japan and the US
In the US Reits use 90% of their income to pay dividends to investors
More on Reits
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Kate Barker, an economist who was commissioned by the Treasury to investigate the UK’s housing supply, suggested similar trusts should be open to UK investors.
The government has previously said it will not legislate for their introduction in 2005, but will report back with a discussion paper by Budget 2005, for “further dialogue” with the industry.
Housing Benefit
Almost four million people pay their rent in the UK with help from housing benefit.
New rules will make it harder for families to cut IHT bills
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The government is now piloting a new “free market” system, known as a “Local Housing Allowance (LHA)”.
Tenants receive benefits based on the size of their family, where they live and their income - and not the rent they pay.
They know how much they will get before they sign a tenancy agreement, giving them more flexibility about where they can live.
If the rent is less than the LHA, they can keep the difference. If the LHA is not enough to pay the rent, they must pay extra.
The government has already announced it intends to introduce nine more “pathfinders” or trials from April 2005 before a national roll out by March 2008.
Other changes, being introduced from April 2005, will simplify housing benefit take- up rules.
Long-term fixed-rate mortgages
In the 2003 Budget, the chancellor announced a review into long-term fixed-rate mortgages and why they are not as popular in Britain as they are in the US and Europe.
David Miles, professor of finance at Imperial College, London, concluded that long-term fixed rates appeared expensive when compared to short-term fixed deals.
The Treasury, which has been conducting further research into the feasibility of introducing such loans, has said it will make a statement at the time of Budget 2005.
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Income tax
Some of the changes to income tax rates and National Insurance (NI) were announced in December’s pre-Budget report.
For example, the personal tax-free allowance for people under 65 will rise from 4,745 in 2004/05 to 4,895 in 2005/06.
However, commentators will eagerly await the chancellor’s announcement on tax bands.
Tax returns
From April 2005, about one and a half million taxpayers with simple tax affairs - such as employees and pensioners - will receive a short tax return.
The government is introducing mandatory electronic filing for businesses by 2010.
Inheritance tax
The government wants to stop people avoiding Inheritance tax (IHT) by giving away assets, such as property, that they continue to benefit from, under the so-called “pre-owned assets” rules.
From April 2005, an income tax charge will be incurred in situations where people have transferred their houses to another family member to avoid IHT, but continue to live in it.
Ahead of the Budget, Dawn Primarolo, paymaster general, said the new regime would not apply retrospectively in many cases.
Tax avoidance
In Budget 2002, the government pledged “vigilance against tax avoidance”.
The government recently introduced a new “Tax Avoidance Disclosure regime”, an attempt to stop wealthy people from using creative tax avoidance regimes to avoid their tax liabilities.
Accountants must now submit tax schemes to the Revenue for inspection and they expect further clampdowns in the Budget.
The government has already launched a crackdown on VAT fraud and so-called missing trader fraud.
Residence & Domicile
Wealthy foreigners can live in the UK and pay hardly any tax because of favourable “residence” and “domicile” rules.
Changing the rules has been mooted since Budget 2003. Supporters of the existing rules say any crackdown would damage UK plc, as it could scare away existing and potential wealthy investors.
It is very uncertain if there will be change to the current laws.
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