Britain’s Chancellor of the Exchequer George Osborne holds up his budget case for the cameras on Downing Street yesterday. Photo: Reuters

Dramatic cuts to Britain's business and personal taxes announced yesterday will pile pressure on Irish efforts to retain and attract international investment.

British Chancellor George Osborne will slash his country's headline rate of corporation tax to 17pc by 2020, from the current 20pc, he said in a budget speech at Westminster.

The UK finance minister introduced a range of tax sweeteners that may help shore up support for Prime Minister David Cameron ahead of a June referendum on European Union membership.

A saving scheme introduced in the budget will make it easier for Britons to save a deposit to buy a home, while widening of income tax bands is "a tax cut for 31 million people", Mr Osborne said.

Major changes in the UK budget that have big implications for Ireland include cutting capital gains tax, paid when business owners sell assets, to 20pc from 28pc. That compares with a standard 33pc CGT rate here and poses a direct challenge to Ireland's attractiveness as a business base, according to business leaders here.

"The UK government has rolled out the red carpet for entrepreneurs," Dublin Chamber of Commerce said, reacting to the cuts.

The move means investors and company founders are now more likely to look at setting up in Northern Ireland or Britain, the business group warned.

Ireland's prized 12.5pc corporation tax rate has long been the cornerstone of our successful effort to attract major employers such as Apple, Pfizer and Intel.

But the UK has radically closed the tax gap in recent years. In 2008, the UK corporation tax was 30pc, well over double ours, and it will now fall to 17pc.

Yesterday's business-friendly budget also set out higher thresholds for business rates for small companies that will effectively scrap commercial rates for more than half a million British small and medium enterprises.

However, Mr Osborne also tightened loopholes that had allowed multinationals to minimise their UK tax bills by booking profits abroad, including many based in Ireland.

"This is a budget which gets rid of loopholes for multinationals and gets rid of tax for small businesses," Mr Osborne said in his budget speech.

"A £7bn tax cut for our nation of shopkeepers. A tax system that says to the world: 'We're open for business.' This is a government that's on your side."

In another move that will be closely watched here, the budget introduced a new life-time savings scheme designed for people under the age of 40 to save for a pension or a to buy home.

The new special savings accounts (ISA) will see the UK government put in £1,000 for every £4,000 saved.

Its similar to the special savings incentive account (SSIA) that operated here at the start of the century which proved hugely popular, but the UK scheme puts strict limits on how the cash can be spent.

Under the new scheme, Britons between the ages 18 and 40 will be able to open an account and save up to £4,000 a year until age 50.

Contributions into the lifetime ISA will receive a bonus of 25pc - up to £1,000 a year.

Funds from a lifetime ISA can be used to save for a pension, or to buy a first home at any time from 12 months after the account is opened.

Mr Osborne said the savings and bonus can be used towards a deposit on a first home worth up to £450,000 across the country.

Mr Osborne said: "With the new lifetime ISA, you don't have to choose between saving for your first home or saving for your retirement."

The average home-buyer deposit in Dublin is now €51,000, which has prompted calls for similar action here.

Irish Independent