Emergency Budget – 22nd June 2010
The new Government’s first Budget was expected to be one of the most exciting ever with a four year near ‘austerity’ regime designed to remove (or at least bring down to a manageable level) the deficit which has been caused by the financial crisis and the methods which the previous Government put in place to deal with it.
George Osborne introduced his Budget as one which ‘pays for the past and plans for the future’. He also stated that the hard choices would not be buried ‘in the small print of the Budget document.
The Budget, coming part way through a tax year, was always going to be more about spending cuts and future tax changes than immediate tax changes and, of course, announcing some tax changes too far in advance tends to reduce the eventual ‘tax take’.
The virtually immediate (midnight on 22nd June) increase in CGT for higher rate taxpayers was the exception to this.
This summary covers the immediate changes and the most relevant of the changes proposed for future years.
This summary is based on the Chancellor’s speech and Press Releases and Technical Bulletins issued immediately after it. More detail will emerge over the next few days as more announcements are made.
Personal Taxes
Income Tax
The following changes will be effective from 2011/12:
- the personal allowance for those aged under 65 will be increased by £1,000 to £7,475 with the intention of increasing this to £10,000 by the end of their term (the basic rate limit will be reduced so that higher rate taxpayers do not benefit from the increase in the personal allowance. The exact figure will be confirmed when September’s RPI figure is known.)
- the higher rate income tax threshold is frozen until 2013.
National Insurance
The following changes will be effective from 2011/12:
Current legislation requires the Government to increase personal allowances and rate limits by the annual percentage increase to the RPI for the year to September preceding the new tax year. The Government will make the Order to set the relevant amounts for 2011/12 after the relevant percentage is published in October 2010.
Capital Gains Tax
For individuals whose income and gains remain below the basic rate band for income tax (currently £37,400), after allowing for deductions (i.e. losses, and the annual exempt amount) the rate of CAPITAL GAINS TAXCAPITAL GAINS TAX
The tax payable on profits made on the sale of assets or property other than your home. (CGT) will remain at 18%. For individuals whose income and gains exceed the basic rate band, trustees and personal representatives, the rate will increase to 28% as from 23 June 2010.
Entrepreneurs’ relief will remain but will no longer be expressed as reduction of 4/9ths of the total gain. All qualifying gains will be taxed at 10% (previously, only an effective rate). The lifetime limit on gains qualifying for this relief is increased immediately from £2 million to £5 million.
The annual exempt amount (AEA) will remain at its current level of £10,100 for individuals (most trustees £5,050).
Corporate Tax
The main rate of corporation tax, for those companies with profits above the upper limit (£1.5 million), is set to fall from 28% currently to 27% on or after 1st April 2011, following changes to the Finance Bill 2010. Further future reductions have also been announced as follows:
- 1st April 2010 - 28%
- 1st April 2011 - 27%
- 1st April 2012 - 26%
- 1st April 2013 - 25%
- 1st April 2014 - 24%
Companies with profits below the lower limit (£300,000) currently pay CORPORATION TAXCORPORATION TAX
A tax applying to limited liability companies only. It is charged on the company’s profits. at 21% (companies that are not closed investment-holding companies). This will reduced to 20% for profits on or after 1st April 2011.
Investments
The announcement of the immediate increase in CGT to 28% for higher rate tax payers has reopened the argument of investment bonds v unit trusts, but the Budget did not bring any additional changes to investments, just confirmation of some changes announced in the April Budget.
Venture Capital Schemes
The final four changes to EIS and VCT schemes agreed with the European Commission will be introduced later this year in the Finance Bill. These were already confirmed in the April budget:
- VCT shares will be required to be listed for trading on any EU regulated market, rather than just the UK official list.
- The definition of ‘eligible’ shares for VCT will change to allow preference shares. The holding requirement for eligible shares within qualifying holdings will increase from 30% to 70%.
- Companies treated as an ‘enterprise in difficulty’ under the EC's Rescue and Restructuring Guidelines will be excluded from qualifying for VCT/EIS reliefs.
- Companies will no longer be required to be carrying on a trade wholly or mainly in the UK and will be required only to have a permanent establishment in the UK.
Real Estate Investment Trusts
REITs will be allowed to issue stock dividends in lieu of cash dividends for the purpose of meeting the requirement to distribute 90% of profits by way of a dividend. Investors will be taxed in the same way as for REIT cash distributions. The change will be introduced in the Finance Bill later this year.
Individual Savings Accounts
As announced in the April budget, ISA limits will continue to be indexed in line with RPI from April 2011.
Pensions
State Pensions
From April 2011, the basic State Pension will be uprated by a triple guarantee of earnings, prices or 2.5 per cent, whichever is highest. CPI will be used as the measure of prices in the triple guarantee but the basic State Pension will be uprated by the equivalent of RPI in April 2011.
The Government will review the date at which the State Pension Age rises to 66. This will be supported by a call for evidence.
Deferring the Effective Requirement to buy an annuity to age 77
The Government has announced that it will end the effective requirement to use a pension fund to buy an annuity by age 75 with effect from 2011/12.
For members with uncrystallised benefits reaching age 75 on or after 22 June 2010, their funds will be crystallised for life-time allowance purposes, with the ability to take any PCLS available, however when moving into drawdown this will be on pre age 75 limits.
In the interim period before the main changes take effect in 2011/12, there will be tax charges of 35 per cent on lump sum death benefits paid by the scheme if they die on or after 22 June 2010 and aged 75 or over.
The specific IHT death charges on pension scheme members, who are in drawdown and are aged 75 or over when they die, will not apply in these circumstances.
NEST
It has been confirmed that NEST will be treated as an occupational pension scheme/registered pension scheme and will benefit from the usual pension reliefs afforded to such arrangements.
Lifetime Allowance and Annual Allowance from 2011
The Government announced it is considering restricting pensions tax relief from 6 April 2011, by reforming the existing pension savings allowances, principally by significantly reducing the annual allowance.
The Government will discuss the changes with interested parties but provisional analysis has suggested that the level of a reformed annual allowance may be in the region of £30,000 to £45,000.
The reformed allowances would replace the high income excess relief charge, which currently is due to come into force on 6 April 2011. Legislation will be brought in to allow the high income excess relief charge legislation to be repealed.
VAT
The standard rate of VAT for registered businesses is increased to 20% effective from 4 January 2011.
However, zero rated supplies, exempt supplies and those subject to the reduced rate of 5% are unaffected by the change.
Legislation will be put into place to target artificial schemes aimed at those who issue an invoice prior to the service being performed, or goods being delivered in an attempt to avoid the increase in VAT.
State Benefits
From April 2011 the second income threshold for the family element of the child tax credit will reduce from £50,000 to £40,000 while the level of in-year rises of income that will be disregarded from calculations of tax credit entitlement will decrease from £25,000 to £10,000, with a further decrease to £5,000 from April 2013.
The rates of Child Benefit will be frozen for three years from April 2011. It has also been confirmed that Child Trust Funds will reduce and cease as announced in May 2010.
From 2013/14 an objective medical assessment will be introduced for the Disability Living Allowance.
From January 2011, the Health in Pregnancy Grant will be abolished; with the SureStart Maternity Grant being restricted to the first child from April 2011.
This document has been prepared with all possible care to ensure its accuracy. It is based on our current understanding of legislation and HMRC practice and is supplied to clients of Almary Green Investments purely for their information
Contact us to arrange a free initial consultation to discuss how this may affect you.