An expert's take on tax

ALISTAIR Darling's first budget was pretty dull, with no real surprises as all the detail had been leaked back in December.

The lower rate of corporation tax is now being paid at 20 per cent and, with personal tax starting with a 20 per cent rate rather than the previous two-tiered 10 per cent and 22 per cent, advice should be taken as to whether it is better to incorporate a business and run it as a limited company or whether to operate as a sole trader or partnership.

The new, lower, basic rate tax, which is now 20 per cent (previously 22 per cent) also means that people paying pensions personally will pay 2 per cent more with the taxman paying 2 per cent less. For high-rate tax payers there is no difference as the high-rate tax threshold remains the same at 40 per cent. In most cases, those paying pension premiums need do nothing as the difference will be adjusted automatically.

The changes to capital gains tax remained in place with only a concessionary entrepreneurs relief allowed for the first £1million worth of gains to be exempt over a lifetime being the only change to a flat rate of 18 per cent tax on all gains with no indexation for inflation.

This has had a huge impact on investments, especially for higher rate tax payers where previously a higher rate tax payer favoured using investment bonds with the ability to defer any gain until such time as they were basic rate tax payers, perhaps in retirement. But this tax advantage has gone with the new capital gains tax rules. It may be cheaper to set up an offshore investment bond or an onshore basket of unit trusts to take advantage of the low rate of capital gains tax at 18 per cent for both basic and high rate tax payers. This is an area where, even with basic investments, independent financial advice should be sought.