True to previous budgets, the main issues this year were hidden away in over 200 pages of press releases rather than in the Chancellor’s speech.
Over the past few years Government has legislated to expand HMRC’s powers to such an extent that taxpayer names and details could in future be placed in the public domain. One wonders what action HMRC will take should an MP or high profile celebrity fall foul of this new regime? Recent television programmes also raise concerns regarding what happens if HMRC get it wrong. The following notes provide a brief outline of the issues that we feel will affect the majority of our private clients. If you require further assistance or clarification on any issue please contact your usual contact.
In order to fund the additional spending in the budget, The Chancellor announced a series of measures that will take effect from April 2010 to increase the tax paid by ‘high earners’.
For individuals with net income of £100,000 or more income tax personal allowances will be restricted. This will be calculated in the same way as those for Age and Married Couples Allowances and the allowance will be reduced by £1 for every £2 of income above the limit. For example, if the restriction applied this year, individuals with income in excess of £112,950 would not receive any allowances.
In addition, a new top rate of tax for taxable income above £150,000 of 50% will come into effect from April 2010.
The above also affects the rate of tax for dividends. For individuals caught by the new regime, dividends will be taxed at a top rate of 42.5%. The position for basic rate taxpayers is unaltered.
Currently, non-resident individuals may claim UK tax allowances by virtue of their Commonwealth citizenship. HMRC have been advised that this does not comply with the Human Rights Act and legislation will be introduced to rectify this.
For individuals earning in excess of £150,000 the higher rate relief on pension contributions may be withdrawn. Where the pattern of regular pension contributions changes or the normal way in which pension benefits are accrued or the total contributions or benefits accrued exceed £20,000, tax relief will be restricted to the basic rate only. These changes are not intended to affect any normal, regular ongoing savings paid under agreements that existed on 22 April 2009.
The rate of tax for discretionary trusts will increase to 50% with effect from April 2010. The rate applicable to dividend income will also increase from 32.5% to 42.5%.
The annual limits for Individual Savings Accounts (ISAs) increases to £5,100 for cash and £10,200 for stocks and shares. For individuals aged over 50 the increases take immediate effect and April 2010 for all others.
In addition to the annual investment allowance of £50,000 there is to be a temporary first year capital allowance of 40% on expenditure incurred on plant and machinery between April 2009 and April 2010.The provisions for the carry back of losses is to be extended from one year to three years. This measure is intended to assist businesses in obtaining maximum tax refunds.
Previously, for capital allowances purposes, cars used within a business were classified according to their original cost. From 6 April the treatment will depend upon the vehicle’s CO2 emissions. As one would expect, vehicles with high emissions will attract only 10% capital allowances whereas those with low emissions 20%.
Stamp Duty Land Tax (SDLT)
The SDLT holiday in respect of residential property purchases is to be extended and legislation to be revised to reflect the new threshold of £175,000.
Inheritance Tax (IHT)
The threshold for IHT was previously announced, £325,000, from April 2009. Relief for Agricultural Property and Woodlands is to be extended to property held within the European Economic Area, EEA. Previously this relief was only available in respect of UK property.
From 1 May the thresholds for registration and deregistration increase to £68,000 and £66,000 respectively. From 1 January 2010 the standard rate of VAT will return to 17.5%.
Capital Gains Tax (CGT)
As with Inheritance Tax, CGT holdover relief is now available in respect of Agricultural Property and Woodlands situated within the EEA.
Children’s Trust Fund
Every eligible child born after 1 September 2002 has a Child Trust Fund account. In addition to the normal contributions, from April 2010 the Government will pay an additional £100 for each disabled child and an additional £200 for each severely disabled child.
Furnished Holiday Lettings (FHL)
Current UK tax legislation may not comply with EU law and the rules are to be revised in order that properties within the EEA will now qualify as FHL’s. Properties within the FHL regime currently receive preferential tax treatment, for example capital gains tax holdover relief, inheritance tax business property relief, income tax losses may be set against general income. It will be possible to backdate claims for earlier years.
From April 2010 it is proposed that the FHL regime be abolished.
Part of the 2009 Finance Bill will include legislation enabling HMRC to publish the names and details of individuals and companies penalised for failure to disclose a liability and the tax loss is more than £25,000. In addition HMRC will have the power to call for additional papers and information, for up to 5 years, from individuals who have incurred a penalty for deliberately understating their tax by at least £5,000.
The penalty regime for direct taxes is to be tightened. The £100 penalty for late filing of personal tax returns will be charged irrespective of whether all tax is paid by the due date. Continued delays in submitting forms will incur significant penalties, up to 70% of the tax due where a return is submitted more than 12 months late and information is withheld.
Interest charged and paid by HMRC is to be aligned across all taxes and the same interest rate will apply to both underpaid and overpaid tax, although the formula for calculating the rate is yet to be agreed.
The tax amnesty for undisclosed offshore bank accounts is to be re-introduced and will run until March 2010. Individuals will have the opportunity to make full disclosure with a view to minimise any penalty prior to HMRC requesting full details from financial institutions.
Venture Capital Schemes
Several measures were announced to encourage investment in Venture Capital Schemes. The time limits imposed on companies employing the cash invested are to be relaxed.
Currently, investors may only carry back up to 50% of their investment to the previous tax year, subject to a £50,000 limit. For 2009/10 onwards the annual investment limit for income tax relief on EIS subscriptions is £500,000 and it is possible for the full amount to be carried back to the previous year.
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