Personal Tax

Proposed changes to income tax rates and personal allowances from 6 April 2010 

For individuals with incomes over ￡100,000 per annum the personal allowance will be reduced by ￡1 for every ￡2 of net income over ￡100,000 per annum. Net income takes account of losses, pension payments and allowable contributions to charity. Although the level of personal allowance is not yet announced for 2010/2011, the effect of this is likely to be that the basic personal allowance will be reduced to nil for net incomes over approximately ￡113,000 per year. For individuals with incomes over ￡150,000 per year a 50% tax rate will apply to taxable non-dividend income above ￡150,000 per year (currently 40%). A 42.5% dividend tax rate will apply where taxable income is over ￡150,000 a year (currently 32.5%). Taking into account dividend tax credits, this means that the effective dividend tax rate will increase from 25% to approximately 36%.  The tax rate applicable to trusts for income in excess of the ￡1,000 basic rate band will be 50% and 42.5% for dividends.  

Pension contributions 

For individuals with incomes of more than ￡150,000 each year higher rate pension tax relief is to be reduced from April 2011 on a sliding scale which will mean that for those with incomes of ￡180,000 or more, tax relief will only be available at 20%. This is combined with anti-forestalling measures which will limit higher rate tax relief to that on the individual's ‘normal pattern of contributions’, or ￡20,000,whichever is greater, for payments made in 2009/10 and 2010/11. 

Agricultural property and woodlands 

The inheritance tax relief and capital gains tax rollover relief available for the value of agricultural property and woodlands are to be extended with effect from 22 April 2009 to property in the European Economic Area – previously these reliefs had only applied to property situated in the UK, Channel Islands or Isle of Man. Transitional provisions will ensure that relief is available in some circumstances  for chargeable events occurringbefore 22 April 2009. 

Furnished holiday lettings

The beneficial tax treatment given to furnished holiday lettings is to be extended to properties within the European Economic Area 5 (EEA) until 5 April 2010, prior to the abolition of the relief in 2010/11. 

ISA's

The annual ISA subscription limit will increase to ￡10,200 for 2009/10 onwards (taking effectfrom 6 October 2009) for individuals aged over 50, with the cash only limit set at ￡5,100.These new limits will apply to all individuals from 2010/11 onwards. 

Venture capital schemes 

There are to be some relaxations to the legislation relating to the Enterprise Investment Scheme (EIS), the Corporate Venturing Scheme and the Venture Capital Trust Scheme, making it easier to carry back EIS income tax relief to the previous year, and relaxing the requirement for funds to be used for a qualifying purpose within a year of subscription. These changes will apply from 22 April 2009. An anomaly relating to the taxation of share for share exchanges has also been addressed for new holdings issued on or after22 April 2009. 

Taxation of personal dividends 

From 22 April 2009, a non payable tax credit will be available to individuals on all dividends from non-UK companies. Where the recipient has a shareholding of 10% or more, the source country must be a qualifying territory (i.e. a territory which has agreed a double taxation agreement with the UK with a non-discrimination article). Also from 22 April 2009, all dividends from offshore funds will attract the non-payable tax credit provided the fund concerned is largely invested in equities. However, where the fund is substantially invested ininterest bearing assets, individuals in receipt of distributions from such funds willbe treated as having received interest instead. 

Offshore funds 

Following consultation, the Government is to change the definition of offshore funds and the new regime will take effect from 1 December 2009. In addition, from the same date, investments in qualifying offshore funds will be treated in the same way as shares or unit trust units for UK capital gains tax (CGT) purposes so that holders will no longer be required to carry out CGT calculations when any underlying assets of the fund are sold. 

Non-residents - changes to personal allowances from 6 April 2010 

Currently, Commonwealth citizens are entitled to claim UK personal allowances even when they are not resident in this country. This right is to be withdrawn from 6 April 2010, although the Government points out that many of those affected will be covered by double taxation agreements anyway. 

The remittance basis 

A number of minor amendments are to be made to the rules introduced last year relating tothe application of the remittance basis: ■ There has been a relaxation in the requirements to file a tax return in certain circumstances. ■ The existing exemptions that allow individuals using the remittance basis to bring property purchased from relevant foreign income into the UK are to be extended to include property purchased out of foreign employment income and foreign chargeable gains, with effect from 6 April 2008. ■ A question had arisen as to whether the ￡30,000 remittance basis charge would be treated as UK tax paid for the purposes of gift aid relief as intended. Finance Bill 2009 will amend the rules to ensure that this is the case with effect from 6 April 2008. ■ A number of very minor amendments have been made to the legislation to counter  perceived abuses.  ■ Statement of Practice 1/09, sets out how transfers made from offshore accounts which contain only the income relating to a single employment contract will be treated. In particular, this deals with how earnings should be apportioned between the UK and non-UK employmentelements where an employee is taxed on the remittance basis. This should only need to apply for one year as the Government intends to legislate for this in the Finance Bill 2010.The year’s delay is to allow a period of consultation with external stakeholders on the most effective way of doing so.  

Changes to company car tax from 2011/12 

The current ￡80,000 price cap that is used when determining the cash equivalent value of a car for benefit purposes is to be abolished. This means that the amount of tax paid by drivers of very expensive cars will be based on the full value in future. Company car tax rates are effectively to be increased. This is achieved by way of a reduction in the lower threshold for CO2 emissions. The figure is currently 130g/km and is to be reduced to 125g/km. At this level, the taxable benefit is calculated on 15% of the list price of the car. This then increases by 1% for each additional 5g/km up to a maximum of 35% (most diesel cars attract a 3% supplement, subject to the overall maximum of 35%). There are also lower rates of 10% for cars with emissions of 120g/km or less and 9% for electric cars, which remain unchanged. 


Anti-avoidance and HMRC powers - extract
 
Publication of the names of serious tax defaulters The Government has announced that it will legislate to enable HMRC to publish the names of companies and individuals who  have deliberately understated more than ￡25,000 of tax. The details published will include not only the relevant names and amounts, but also addresses and the business sector. Those who make an unprompted disclosure or a full prompted disclosure within the required time will not be affected. Those who have deliberately evaded a much smaller figure, just ￡5,000 of tax, will be required to submit returns for up to the following five years showing more detailed tax information, for example, detail of the nature and value of any balancing adjustments within business accounts. 

New penalties Measures in the last two Finance Acts have transformed the way penalties are calculated for matters such as incorrect tax returns, apply to all of the main types of tax. As expected, it has now been announced thatpenalties for late filing of returns and late payment of tax liabilities will be brought into the newregime. In addition, the new compliance checks regime that was introduced by Schedule 36 FA 2008 for the main taxes has now been extended to cover other taxes such as IHT and SDLT. 

Voluntary managed payment plans are to be introduced to allow taxpayers to spread their income tax or corporation tax payments. HMRC are to be permitted to collect small debts through the PAYE system. In future, companies and businesses may be obliged to supply HMRC with contact details of people who are in debt to HMRC, although it is unclear how this will work in practice. 


Other measures

Car scrappage and ultra low carbon vehicles in the UK After much lobbying by the UK Motor industry, the Chancellor has announced details of a short term car scrappage plan in order to try and kick-start demand for new cars within the UK. This is to commence in May 2009 and will last until March 2010. It is proposed that the ￡2,000 subsidy will apply where cars that are over 10 years old are scrapped and replaced with a new vehicle. This will only apply to individuals that have been the registered keeper of the car for the last 12 months and is to be co-funded by manufacturers participating in the scheme with the Government  providing 50% of the subsidy. 

Following an extended consultation process, there is to be a change in the rules relating to substantial donors to charities. In future, donors can make contributions of up to ￡150,000 in a six year period, increased from ￡100,000, but the current limit of £25,000 a year on such donations is to remain unchanged. This is thought to be an interim measure, pending further consultation to take place over the next year.

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