Individual Savings Accounts – increasing the limits
The Individual Savings Accounts (ISAs) subscription limit will increase by £3,000 from £7,200 to £10,200.
The cash and stocks/shares elements will both increase by £1,500 from £3,600 to £5,100.
Individuals aged 50 or above, will benefit from this increase from 6 October 2009, whilst all other individuals will have to wait until 6 April 2010.
Child Trust Fund – payments for disabled children
As a reminder, every eligible child born on or after 1 September 2002 has a Child Trust Fund account into which family and friends can contribute up to £1,200 each year.
In addition, a contribution of £100 per annum, rising to £200 per annum for severely disabled children, will be made by the Government from April 2010 for children in receipt of Disability Living Allowance at any point during 2009/10.
Individuals
Changes to personal tax rates
With effect from 6 April 2010 a new top rate of tax will be introduced of 50% (currently 40%) for those with taxable income greater than £150,000. Where the taxable income in excess of £150,000 is dividends the tax rate will increase to 42.5% (currently 32.5%).
In addition, the personal allowance for those with taxable income over £100,000 will be reduced by £1 for every £2 above the threshold, such that those earning over approximately £113,000, will have no personal allowance available.
Whilst the published new top rate is 50%, due to the tapering of personal allowances, those earning between £100,000 and approximately £113,000 will suffer an effective rate of 60%.
These changes replace those announced in the 2008 pre budget report whereby the top rate of tax was to be 45% from 6 April 2011 and the personal allowance reduction was split such that 50% was tapered on income over £100,000 and the remainder tapered on income over £150,000.
Taxation of personal dividends
Following on from changes in the 2008 budget the non-payable tax credit will be available from 22 April 2009 to individuals receiving dividends from non-UK resident companies where the individual owns a 10% or greater shareholding in the company. The tax credit will only be available if the company is resident in a qualifying territory – broadly a country with which the UK has a double tax treaty including a non discrimination article.
Similar changes are being introduced for all shareholders receiving dividends from offshore funds providing the fund has no more than 60% of its assets in interest bearing form.
Non residents and personal allowances
A non UK resident can currently claim a personal allowance providing they are a commonwealth citizen. This will be withdrawn with effect from 6 April 2010 although a personal allowance will still be available for many by other means, such as a double tax treaty.
Residence and Domicile
Further changes have been made to the rules introduced in April 2008 for those who are resident but not domiciled, or not ordinarily resident in the UK.
The following changes will be backdated to apply from 6 April 2008:
- No self assessment tax return will be required in the UK if overseas employment income is less than £10,000 and bank interest is less than £100, all of which is taxed overseas
- Assets purchased from foreign employment income and foreign chargeable gains, as well as relevant foreign income, can be brought to the UK without triggering a liability to UK tax.
- No claim will be required to use the remittance basis where unremitted foreign income and gains are less than £2,000 in any tax year. A claim will, however, be required if the arising basis is to be used.
- A claim will also not be required where UK income or gains are less than £100 which has been taxed in the UK and no remittances are made.
- For gift aid purposes the £30,000 remittance basis charge will count as tax paid by the donor when a charity is reclaiming tax on gifts.
Enterprise Investment Scheme (EIS), Corporate venturing scheme (CVS) and Venture Capital Trusts (VCT)
Currently, EIS investors can carry back income tax relief to an earlier year providing that the investment is made before 6 October, subject to a limit of half the subscriptions in that period, up to an overall limit of £50,000 subscribed.
With effect from 6 April 2009 these restrictions will be lifted and relief can be carried back one year subject to an increased maximum of £500,000 subscribed.
From 22 April 2009 any share for share exchange of an EIS holding will no longer give rise to a gain or loss on the EIS shares, although any gain deferred will come back into charge.
From 22 April 2009 the rules on the use of funds raised by EIS, CVS and VCT qualifying companies will be relaxed so that all money must be invested within two years of the date of the share issue. Previously the rules stipulated 80% must be invested within one year and the balance within two years.
Tax reclaims
With effect from 6 April 2010 the time limits for claiming a repayment of tax as a result of an error or mistake will decrease to four years from the period for which the return was made.
Trusts
With effect from 6 April 2010 the trust rate of tax will increase to 42.5% for dividend income and will be 50% for all other income
Pensions – limiting tax relief for high income individuals
From 6 April 2011, the intention is to taper tax relief on pension contributions, for people with taxable income of £150,000 or more, so that those earning in excess of £180,000 will be restricted to tax relief at the basic rate only.
The restriction will apply where the ‘normal regular pattern’ of contributions change and the total pension contributions exceed £20,000 per annum. However, any normal, regular ongoing pension contributions that were in place before 22 April 2009, whatever their value, will not be impacted.
From the limited information released, it appears as though, if regular pension payments are less than £20,000, additional contributions up to £20,000 can be made and still obtain higher rate relief. The tapering would seem to start after that point.
Individuals will need to make the adjustment in the form of a tax charge through their self assessment tax return, which effectively negates the tax relief which has been allowed.
Anti avoidance provisions will apply from 22 April 2009 to prevent individuals increasing their pension contributions in excess of their normal regular pattern.
Consultation is to be entered into prior to implementation when more details are certain to be released.
Normal, regular ongoing pension contributions are those paid quarterly or more frequently and at a rate that does not increase.
Businesses
Capital Alowances
Plant and machinery – temporary First Year Allowances
Where qualifying expenditure on plant and machinery exceeds the Annual Investment Allowance, a temporary 40% First Year Allowance (FYA) will be available to all businesses on the excess expenditure for 2009/10 only.
As with previous and existing FYAs, there are exceptions where the expenditure will not qualify, such as ‘special rate’ expenditure (including long life assets and integral features), expenditure on cars and assets for leasing.
‘Expensive’ Cars
The new rules will have effect for expenditure incurred, or leases entered into, on or after 1 April 2009 for companies and on or after 6 April 2009 for unincorporated businesses.
Cars will now be allocated to the appropriate capital allowances pool, depending on their Carbon Dioxide (CO2) emissions, on which a Writing Down Allowance (WDA) can be claimed as follows:
CO2 emissions are greater than 160g/km 10% pool
CO2 emissions of 160g/km or less 20% pool
Cars that have an element of non-business use within an unincorporated business will continue to be in single asset pools to enable the private use adjustment to be made, with the rate of WDA still being determined by the car’s CO2 emissions.
There will be specific anti-avoidance rules to prevent the generation of balancing allowances by selling cars in a single asset pool at less than market value.
A more simplified disallowance flat rate of 15% for car lease rental payments will only be applied to cars with CO2 emissions exceeding 160g/km. The old rules (whereby the disallowance is linked to list price) will still apply for those leases entered into before April 2009 and will run until the end of the lease.
Motor cycles will be excluded from the definition of cars and will not be subject to these rules. Expenditure incurred from April 2009 will qualify, where appropriate, for the 100% Annual Investment Allowance, FYA as a short life asset.
Furnished Holiday Lets
Furnished holiday lets within the UK have, to date, enjoyed many tax benefits, including Business Property Relief for inheritance tax purposes, ability to offset losses against other income and lower capital gains tax rates on disposal.
As the benefits have only been available for UK properties, it has been announced that the legislation may not be compliant with European Law. As a result, the Government is allowing the beneficial treatment referred to above to apply to all furnished holiday lets within the European Economic Area until 2010/11, at which point the rules will be repealed in full.
Therefore, it is the Government’s current intention to remove the tax benefits of furnished holiday lets completely, even for those properties within the UK, from 2010/11. As a result, it may be advisable to consider your tax position, if you currently hold furnished holiday lets.
Back to Budget 2009>>