UK: Budget 2005 Business Summary

Last Updated: 23 March 2005
Article by Belinda Bridgen

The following is a summary of the most important aspects of the Budget affecting business taxation. As always, details at this stage are scant and we have to await publication of the draft legislation for the full facts.

Except where identified below there has been no change in the tax rates and thresholds for corporation tax, VAT, stamp duty, Stamp Duty Reserve Tax (SDRT) or Stamp Duty Land Tax (SDLT).

Property Tax

Stamp Duty Land Tax (SDLT)

First the good news – the threshold for SDLT on residential properties has doubled to £120,000.

That's it – the rest appears to be bad news:

  • disadvantaged areas relief for commercial land is abolished although it is retained for residential land
  • a number of anti-avoidance measures are introduced to stop certain schemes including:
    • extension of circumstances giving rise to clawback of group relief
    • restriction of acquisition relief to trades which do not comprise land transactions
    • imposition of tax on the grant of a lease to a nominee or bare trustee
    • all variations of leases where the tenant gives consideration are to be treated as the acquisition of a chargeable interest not just variations to reduce the rent
    • changes to the rules of contingent consideration to cover loans and deposits
    • ensuring that the sale element of a sale and leaseback is chargeable by reference to the full market value disregarding the effect of the lease back
    • restriction of sub-sale relief for certain refinancing arrangements for individuals.

All these changes take effect as of 17 March 2005. There are transitional provisions whereby certain transactions under contracts entered into, on, or before 16 March may continue to benefit from the old rules.

Furthermore, the disclosure rules for promoters or users of tax avoidance schemes, introduced last year, are to be extended to cover SDLT schemes relating to commercial property with a market value of at least £5 million, with effect from 1 July.

The Inland Revenue seems determined to collect its pound of flesh, or its 4%.

Real Estate Investment Trusts (REITs)

The Government has confirmed its commitment to introduce REITs and is aiming to introduce legislation in 2006, following further consultation with the industry. The objective is to create a flexible vehicle which gives the same tax consequences as direct investment i.e. there should not be an additional layer of tax but nor should there be any loss of tax to the Government.

The broad proposal is that the REIT should take the form of a closed-end company, where at least 75% of its activities comprise property investment. It need not necessarily be listed, need have no particular form of management structure and could invest in all forms of property both in the UK and elsewhere. The 75% test would permit other activity including development. However, single property investment would not be permitted – there must be a portfolio.

The tax regime suggested is total exemption for the property investment activity with any other activity or income being subject to normal corporation tax rules. This is subject to resolving the following issues on which industry views and suggestions are invited:

  • ensuring that non-residents pay the same level of tax as now (basic rate tax on rental income) having regard to obligations under double tax treaties
  • preventing excessive borrowing levels
  • how REITS could operate within a group structure.

Comments are invited by 27 May 2005.


  • The VAT registration threshold is increased to £60,000
  • The VAT avoidance scheme disclosure rules are to be extended to cover schemes which remove the effect of the "option to tax" with effect from a date to be announced which will be after Royal Assent
  • There is a package of measures affecting partial exemption designed to ensure "fair recovery of VAT". In other words, the rules are tightened and Customs get more power.

Capital Allowances

  • 100% capital allowances on renovating disused business premises in disadvantaged areas.

Alternative Property Finance

Changes will be introduced to facilitate Islamic lending. Such transactions will be taxed on the same basis as equivalent transactions involving the payment of interest. There will also be an extension to the range of SDLT reliefs available for such transactions.


There are a number of technical changes relating to chargeable gains arising to certain Unauthorised Unit Trusts (UUTs) and Open Ended Investment Companies (OEICs). Regulations to reform the tax treatment of Authorised Investment Funds (AIFs) and their investors will be introduced after further discussion with the industry.

Tax relief for low budget films, which was due to expire on 1 July 2005 is extended until 31 March 2006. However the anti-avoidance provisions announced in the December Pre-Budget Report came into effect on 2 December 2004.

Other Corporate Tax Proposals

There are anti-avoidance provisions to block a number of schemes, which have been disclosed under the disclosure rules introduced last year. These are principally in relation to schemes that use financial products, relate to intangible assets, create double tax relief and international arbitrage using hybrid entities or instruments ("double dipping").

There is clarification on the calculation of double tax relief on trade receipts and a number of proposals designed to cope with International Accounting Standards particularly in relation to financing arrangements, derivatives and securitisation vehicles.

This article is only intended as a general statement and no action should be taken in reliance on it without specific legal advice.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions