George Osborne’s first Conservative Budget for 19 years set out to put security as its overriding theme.
It aimed to reward work, support aspiration, improve productivity and continue the country’s economic recovery.
The headlines were inevitably taken by the introduction of a ‘living wage’ and the overdue cuts to the welfare state.
Other important decisions resulted in a further reduction in the corporation tax rate to 19 per cent, increased income tax allowances and improvements to the bands – effectively creating a tax reduction – a revamp of the taxation of dividends and the restriction of mortgage interest tax relief for landlords.
The new definitions of domicile will limit the number of years a UK resident can claim non-UK domicile status. This will tax worldwide incomes and gains for individuals who have been resident in the UK for 15 of the past 20 years.
These changes will also apply for inheritance tax (IHT) purposes and further modifications will bring homes owned by non-domiciled residents through offshore structures into the IHT net.
The chancellor’s proposed alterations to IHT include the introduction of an additional nil-rate band when a residence is passed on death to direct descendants. This threshold will be phased in from 2017-18.
Any unused nil-rate band can be transferred to the surviving spouse or civil partner.
It will also be available to anyone who downsizes after July 8 2015 and the assets of equivalent value are passed on death to direct descendants. This is subject to a technical consultation.
In addition, there will be a tapered withdrawal – at a rate of £1 for every £2 of the extra nil-rate band – for estates with a net value of more than £2m.
Perhaps the most hidden fact is that the nil-rate threshold of £325,000 has effectively been frozen until 2020-21.
However, the government expects the number of estates making a contribution to IHT to continue to grow and reach record levels during the next parliament.
With more than 50,000 estates expected to be liable to IHT and an expected take of almost £6bn, there remains plenty of scope for mitigation for clients with financial planners using statutory tax reliefs that have been left untouched, such as business and agricultural property reliefs.
The government has also proposed some substantial alterations in respect of tax-efficient investments.
The venture capital trust (VCT) market will probably be most affected, with rule changes to prevent reinvestment in similar businesses that were previously eligible at the time of funding.
In addition, there is now an age limit so that capital can only be directed at companies that made their first commercial sale seven years ago or less.
While these modifications are also relevant to enterprise investment schemes (EISs), they will have more of an impact on the VCT industry.
However, the restriction on using funds to acquire existing trades is one change that could affect an EIS significantly.