Another Budget bites the dust and once again the devil is in the detail.

With the exception of the changes to the rates of capital allowances, most businesses will be left unmoved by the majority of the Budget’s direct tax content. Even the VAT measures are relatively unexceptional; perhaps the biggest surprise there was that it was confirmed that the standard rate will be returning to 17 1/2% at the end of December this year and will not be raised to a higher level.

There are some measures that will impact on businesses but these are mainly administrative – such as the opportunity to defer some tax payments in cases of cash flow difficulty and extensions to HMRC’s powers to obtain information.

For many the changes to personal tax rates are likely to be some of the most interesting changes:

  • the increase in the proposed new higher rate of income tax to 50% (rather than 45%) for individuals earning in excess of £150,000 and its earlier introduction (from 6 April 2010 rather than 2011) is the most intriguing point; and
  • the complete withdrawal (or is it a phased withdrawal?) of personal allowances for those with incomes in excess of £100,000 from 2010.

As usual there are many new special anti-avoidance rules. This year seems to have produced a bumper crop that will, no doubt, swell the size of the Finance Bill to considerable proportions with long and complex legislation that will apply to few and which few will understand.

But as so often happens some of the most interesting things in the Budget were not mentioned in the Chancellor’s speech. Interestingly, this year, some of these were not even mentioned in the Budget Notes that are issued by HMRC immediately after his speech is finished. (This year the Budget Notes ran to the size of a small novel – 222 pages in total – so it might be expected to be reasonably comprehensive.)

The two main ‘missing’ items are the abolition of Furnished Holiday Lettings with effect from 6 April 2010 and the introduction of a new tax ‘amnesty’ to be called the ‘New Disclosure Opportunity’.

The favourable tax treatment given to self-catering holiday accommodation that qualifies as Furnished Holiday Lettings is important to many individuals. Unfortunately the existing legislation seems to have offended European Union rules and so the government’s solution is to completely withdraw the existing status of Furnished Holiday Lettings altogether.

The New Disclosure Opportunity follows on from an earlier voluntary disclosure scheme operated by HMRC in 2007. Until March 2010, individuals holding bank accounts in foreign countries who have failed to fully declare all tax liabilities associated with those accounts can voluntarily disclose the facts to HMRC under a special simplified scheme.

Allowances and Rates

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Other Changes and Points to Note

Additional Rate of Income Tax and Income Related Reduction of the Personal Allowance

In 2008 the Chancellor announced an additional 45% higher rate of income tax from 2011 for taxable income above £150,000. This rate has now been increased to 50% and the date of introduction has been brought forward to April 2010.

As a result of this new tax rate there is now a higher dividend rate also for dividend income above £150,000 to 42.5%.

Furthermore, from April 2010 the basic personal allowance will either be gradually reduced to nil for individuals with income above £100,000 or completely removed at that income level (The Chnacellor’s speech and the Budget Notes contradict themselves in this respect).

Trust rate

The tax rates applicable to Trusts are based on the highest rate of income tax. As such the trust rates will be increased to match those for income tax, i.e. 50% for non-dividend income and 42.5% for dividend income.

Pensions: Limiting Tax Relief for High Income Individuals

From 22 April 2009, individuals earning over £150,000 will be affected by changes limiting the amount of higher rate tax relief available, where they change their regular pension contributions and where the contributions to their personal pension scheme exceeds £20,000. Individuals who currently regularly pay in excess of £20,000, or those who do not pay in excess of £20,000 per tax year will not be affected. Where an individual falls foul of the new regulations, they will have their tax relief on the excess over £20,000 restricted to the basic rate of tax. Pensions: General The annual allowance from 6 April 2010 will be increased to £255,000 (2009-10 £245,000). Pensions: Payments received from the Financial Assistance Scheme (FAS) in respect of failed occupational pension schemes have previously been received tax-free in the same way as a lump sum from a registered pension scheme. However, it has been determined that the FAS is not a registered pension scheme. Subsequently it cannot benefit from the same tax relief’s as those paid from a registered scheme, and therefore future payments from the FAS will be taxable. Changes are likely to be made in the future to achieve the same tax relief for a payment from the FAS to be treated as a payment similar to a lump sum from a registered pension scheme.

Dividends from non-UK resident companies

Individuals in receipt of dividends from non-UK resident companies are entitled to a non-payable tax credit of one ninth of the distribution. This has now been extended to individuals with a shareholding of 10% or more in the non-resident company. The effective rate on these dividends is therefore reduced to 0% for basic rate taxpayers and 25% for higher rate taxpayers.

Dividends from Offshore Funds The above rules are extended to distributions from offshore funds. However, where the offshore fund holds more than 60% of its assets in interest bearing form then the tax credit is not available and the distribution will be treated as interest.

UK Personal Allowances for Non-UK Resident Individuals

Non-UK resident individuals who currently qualify for UK personal allowances and reliefs solely by virtue of being a Commonweath citizen will, from April 2010, only qualify if the Double Taxation Agreements so allows.

Inheritance Tax

There has been an extension to the relief given to Agricultural Property (APR) and Woodlands (WR) in respect of both Inheritance Tax (IHT) and Capital Gains Tax (CGT) hold over relief.

The new provisions relate to APR and WR situated inside the EEA and now allow for the same reliefs to apply to land situated outside the UK as they do inside.

The rules have effect from 22 April 2009 and mean that any estate that has paid IHT in respect of either Agricultural Property located in the EEA on or after 23 April 2003 can claim a refund. The earliest deadline for reclaiming overpayments will be 21 April 2010.

Hold over relief allows deferral of a CGT charge and is now available in respect of agricultural property in EEA states farmed by a person other than the owner. Hold over relief will also become available in respect of agricultural properties located in a qualifying EEA state in the past. Claims for relief in respect of tax year 2003/04 can be made until January 2010.


The ISA limit will be raised to £10,200, up to £5,100 of which can be saved in cash. The new limits will apply to people aged 50 and over in 2009/10 and for all other ISA investors from 2010/11 onwards.

Child Trust Fund

From April 2010 the Government will contribute £100 every year to the Child Trust Fund accounts of all disabled children, with severely disabled children receiving £200 per year.


New Disclosure Opportunity

Until March 2010, individuals holding bank accounts in foreign countries who have failed to fully declare all tax liabilities associated with those accounts can voluntarily disclose the facts to HMRC under a special simplified scheme. The scheme (or Opportunity) will guarantee the level of financial penalties that HMRC will charge for the under declaration of tax. HMRC have also indicated that they will be issuing notices to banks and other financial institutions requiring them to provide information about any offshore accounts of which they are aware

Name and shame

HMRC will publish the names and details of individuals and companies who are penalised for deliberate defaults leading to a loss of tax of more than £25,000. Names will not be published of those who make a full, unprompted disclosure or a full prompted disclosure within the required time. Details will be published quarterly within one year of the penalty becoming final and will be removed from publication one year later.