Dull Budget is child's play for Brown

Apart from a one-off endowment for babies, Gordon Brown's budget was lacklustre.

Edward Troup looks at the small print

First-time voters in 2021 will no doubt be grateful to Gordon Brown for the 2003 Budget - they will be the first recipients of the new child trust fund, giving all babies a one-off endowment of up to 500.

For those of us already old enough to vote, the Budget had little to entice.

Even burying the bad fiscal news in nearly 300 pages of announcements and re-announcements did little to conceal the fact that this was a Budget without a message.

Small and medium-sized businesses fared best, with various bells and whistles being added to existing schemes to give enhanced allowances and reliefs for IT expenditure, and research and development.

Larger businesses have little to thank the Chancellor for, apart perhaps from the fact that this year, at least, there are no big tax increases either introduced or promised.

Following the Pre-Budget Report (PBR) fanfare of a concerted strategy to tackle VAT losses, the Budget heralded a compliance and enforcement package for the Inland Revenue.

Additional resources will be aimed at curbing fraud and countering avoidance of corporation tax, income tax and National Insurance contributions.

For the international community, the reform of the law of domicile, with its favourable treatment of wealthy individuals coming to the UK, remained the dog which did not bark, with the publication of a deeply non-committal background paper.

Against many predictions, stamp duty was not raised, but this is the area most likely to concern the legal profession over the coming months.

As announced in last year's Budget and already extensively consulted on, wholesale reform of stamp duty on real property is to take effect from December this year.

At the heart of the reform is the replacement of the old tax on documents with a self-assessed tax on transactions.

The rates remain unchanged for freehold sales and for leases granted for a premium - at least for the moment - but the Chancellor has now announced that for other leases, tax is to be assessed at 1% of the present value of the total rents, discounted at a rate of 3.5% a year, and subject to a threshold where the value of the property, assessed in this way, is less than 150,000.

Although much remains to be finalised, it is already clear that a number of other policy changes will follow: sub-sale relief is likely to disappear in its present form, special rules will be brought in for partnerships, and anti-avoidance rules will continue to proliferate.

For practitioners, these proposals raise many questions.

What will be their role in calculating and accounting for this tax? For how long will the new rules require document retention? Will there be any circumstances in which advisers could be liable to the Revenue for any unpaid tax? Members of the Law Society's tax law committee are actively involved in discussions with the Revenue on the new rules and will be working to ensure that the burdens on the profession are kept to a minimum.

An important point for practitioners to note is the change to the exemption from stamp duty on commercial property in disadvantaged areas.

With effect from 10 April 2003, stamp duty will no longer have to be paid on commercial property transactions within the designated disadvantaged areas, following the abolition of the previous limit of 150,000.

This limit will still apply to residential property.

Guidance on the operation of this relief has been published by the Revenue and can be found on its Web site at: www.inlandrevenue.gov.uk/pdfs/sp1_2003.pdf.

Overall, this was not a Budget to excite much interest, but there were some small crumbs of serious thought.

Behind the Chancellor's usual blizzard of announcements of reviews and incentives to increase enterprise and productivity, there was an acknowledgement that our tax system is not immune to international pressures.

Buried deep in the press releases was the announcement that the promised reform of corporation tax, which will progress with a further consultation paper in the summer, will need to address the role of European law and of the European Court of Justice, in formulating policy in this area.

The Treasury has in recent years paid little attention to the consequences of its tax policies and relied too much on assertions of their effectiveness.

Perhaps this small indication of willingness to accept the role of some outside influences is the first sign of a change of approach.

Edward Troup is a partner at City firm Simmons & Simmons and chairman of the Law Society's tax law committee