Tax: What we knew before the Budget

• Council tax - above inflation, yet again
• Lights, camera, action...cut!
• International duty free allowance to rise
• VAT on contraceptives to be cut
• Rewards for good teens
• 'Landlord tax' will mean higher rents

Council tax - above inflation, yet again

Council tax has risen 84% since Labour came to power. Average Band D bills have risen in England from £688 in 1997/98 to £1,214 in 2005/06. In the 2003/04 tax year alone bills rose by 12.9%, four times the prevailing rate of inflation.

Bills for 2005-06 are rising by almost twice the rate of inflation. However, the average 4.5% increase, while higher than that imposed last year (election year), is still the second lowest increase in a decade. The threat of capping by central government, affecting rises of more than 5% in the main factor keeping a lid on council tax. Other reasons include the move to split off education funding, more central funds and (don't laugh) efficiency savings.

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Lights, camera, action... cut!

The Chancellor offers tax relief on investments in certain British films. These tax breaks, which have attracted around £6bn into the industry over the past 10 years are being phased out from April.

There are two main types of relief, Section 48 and Section 42. Section 48 offers immediate tax relief at 40% on investments in British films with budgets under £15m. Section 42 offers tax relief at 40% spread over three years and is aimed at investments in British films with budgets of more than £15m.

The estimated cost of the tax breaks, £2.4bn, has proved too much for the Treasury. They are to be replaced by a tax credit to be paid directly to the film producer. This means investors will only benefit indirectly. Film promoters believe that the ending of the two tax reliefs could have a devastating effect on the UK film industry.

In future, films with a budget of more than £20m will be able to claim a tax deduction of 80% and/or a cash tax credit of 20%. Films costing less than £20m will be able to claim a deduction of 100% and/or a cash tax credit of 25%. The Budget should offer more detail on exactly how this new regime will work.

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International duty free allowance to rise

The European Commission has increased the amount of duty free goods that may be brought into the EU from elsewhere in the world. A directive announced on 27 February increases the allowance from Euro 175 to Euro 500 (£120 to £340).

However, the EU ruling represents a defeat for Gordon Brown. He'd announced proposals to raise the limit to £1,000 in Budget 2005, denouncing the old limit as 'unfair'. The current limit set in 1994, has been widely derided as ridiculously low.

To discourage cross-border shopping trips in Eastern Europe, the European Commission has introduced a two-tier set of allowances, with the Euro 500 limit applying only to those who travel by air. For those travelling by boat or car, the limit will only be increased to Euro 220.

This will also apply to travellers crossing the Atlantic on cruises, leading to the bizarre anomaly that those who spend thousands of pounds to travel back from the United States on the QE2, for example, will be allowed to bring back less than half the shopping duty-free than someone on a discount airline ticket.

Under the new rules duty-free limits on the amount of perfume or eau de toilette that can be brought back to Britain will be scrapped, and the limit on wine will be doubled from two litres to four litres. A 16-litre limit on beer is also to be introduced, aimed at deterring cross-border shoppers in Eastern Europe.

In Budget 2006, the Chancellor said he would be going back to Europe once again to press for an increase in the allowance to £1,000.

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VAT on contraceptives to be cut

Not perhaps the biggest budget leak but certainly the one that produced the most unusual headlines, VAT on condoms is being reduced from 17.5% to 5%.

Tabloid headlines about sex tax came after Euan Sutherland, the managing director of Superdrug, claimed, "We are delighted that the Treasury has heeded our calls to make a change in the VAT rules. The VAT rules do not make sense and this is just the first of a series of challenges we will mount to ensure our customers don't pay a luxury tax on the items we know are real essentials."

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Rewards for good teens

Ahead of Budget 2006 Gordon Brown unveiled plans to reward 'good behaviour' by teenagers with smart cards worth up to £300 a year. Under the scheme, young people will receive £25 a month to spend on sport and leisure facilities in their area. The Chancellor also wants to provide 'life coaches' for badly behaved teenagers and plans to give £115 million to youth groups over the next two years.

The 'youth opportunity' cards are to be piloted by 10 local councils, All 13- to 19-year-olds will be entitled to the cards, worth between £12 and £25 a month. Children from poorer families may be given an additional 'top up'.

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'Landlord tax' will mean higher rents

The law of unintended consequences strikes again! The new licensing regime for rented property could push up the cost of owning buy-to-let properties and make renting more expensive for students and other low earners. The HMO - houses of multiple occupation - licensing scheme is a compulsory levy on owners of houses that are let to five or more people living on three floors or more. However, local authorities have the power to apply more stringent criteria and may decide that all rented properties will require licenses.

The provisions, included in the 2004 Housing Act, which relate to the five-year licenses, come in to force in England and Wales on April 6. Landlords have three months' grace after that date, allowing them until July 6 to submit their licence applications.

Landlords who continue to operate unlicensed will be fined and may be subject to a rent repayment order, allowing a local authority to seize up to 12 months' rent. Licences must be bought for each relevant property that a landlord owns and will not be transferable to a new owner.

To qualify for a licence, a landlord must prove that he or she is "a fit and proper'' person to hold one, and the house must be suitable for the number of people living in it.

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