12 May 2010
latest announcements
The following is the text of the Tax Measures section of the document entitled “Conservative – Liberal Democrat coalition negotiation agreements (reached 11 May 2009)” now published on both parties’ websites. Please read on to find out more about the expected CGT changes.
“The parties agree that the personal allowance for income tax should be increased in order to help lower and middle income earners. We agree to announce in the first Budget a substantial increase in the personal allowance from April 2011, with the benefits focused on those with lower and middle incomes. This will be funded with the money that would have been used to pay for the increase in Employee National Insurance thresholds proposed by the Conservatives, as well as revenues from increases in Capital Gains Tax rates for non-business assets as described below. The increase in Employer National Insurance thresholds proposed by the Conservatives will go ahead in order to stop Labour’s jobs tax. We also agree to a longer term policy objective of further increasing the personal allowance to £10,000, making further real terms steps each year towards this objective.
We agree that this should take priority over other tax cuts, including cuts to Inheritance Tax. We also agree that provision will be made for Liberal Democrat MPs to abstain on budget resolutions to introduce transferable tax allowances for married couples without prejudice to this coalition agreement.
The parties agree that a switch should be made to a per-plane, rather than per-passenger duty; a proportion of any increased revenues over time will be used to help fund increases in the personal allowance.
We further agree to seek a detailed agreement on taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.
The parties agree that tackling tax avoidance is essential for the new government, and that all efforts will be made to do so, including detailed development of Liberal Democrat proposals.”
24 March 2010
budget 2010 summary
With an Election imminent, tax rises largely pre-announced (in Budget and PBR 2009) and the spending review deferred until the Autumn this was always likely to be a Budget designed to avoid scaring the electorate and to calm the markets. The Chancellor pointedly announced the absence of any new changes to rates of income tax, NIC and VAT. He also teased the Opposition benches when resisting the temptation to steal their clothes by reducing the rate of corporation tax. More surprisingly, he did not increase the rate of capital gains tax where the differential between marginal rates of income tax of, prospectively 52%, and current rate of capital gains tax of 18% looks increasingly unsustainable. This, however, may be a matter for later in the year! Funds were found for such sweeteners as the SDLT relief for first time buyers and, more unexpectedly, a doubling of the entrepreneurs’ lifetime limit providing a favoured 10% capital gains tax rate for the first £2,000,000 of such qualifying gains.
The main tax changes announced are summarised below:
business tax changes
corporation tax rates
• the main rate of corporation tax remains unchanged for the financial years 2010/11 and 2011/12 at 28%.
• the small companies’ rate of corporation tax will remain at 21% for the financial year 2010/11 to be increased to 22% in financial year 2011/12.
• measures are to be introduced from 1 April 2011 to simplify the associated company rules as they apply to the small companies’ rate of corporation tax.
intellectual property
• as announced at the 2009 Pre-Budget Report a Patent Box is to be introduced applying a 10% rate of corporation tax to income from patents from 1 April 2013.
• again as announced at the 2009 Pre-Budget Report legislation will be introduced to abolish the condition requiring any intellectual property deriving from R&D to be owned by the company making the claim. The change will be effective for expenditure incurred by an SME on R&D in an accounting period ending on or after 9 December 2009.
other corporation tax changes
• legislation is to be introduced to clarify the treatment of capital distributions, to restore the position as previously understood prior to the introduction of the dividend exemption.
• as a result of further consultation on the practical working of the worldwide debt cap rules, further minor changes are to be made to the draft legalisation effective from 1 January 2010.
• legislation is to be introduced to enable amendments to be made to the corporation tax rules dealing with financial instruments when necessitated by changes to accounting standards (the prospective introduction of IFRS for SMEs).
• amendments are to be made to the Consortium Relief rules to permit EU and EEA resident companies engaged in UK consortia to pass the losses of those consortia to their UK resident subsidiaries.
small business rate relief
• the level of small business rate relief in England is to be temporarily increased for one year from 1 October 2010 to give full relief for eligible businesses premises with a rateable value up to £6,000 and tapering relief to £12,000.
capital allowances
• Annual Investment Allowance (AIA) at 100% on qualifying capital expenditure has been doubled to £100,000 from April 2010 (effective 1 April for companies, 6 April for individuals/partnerships).
• new anti-avoidance legislation will be introduced to prevent income tax relief on property losses arising through the use of AIAs.
• a new 100% First Year Allowance (FYA) will be introduced for business expenditure on new and unused (i.e. not second hand) zero-carbon emission goods vehicles.
employment taxes
Enterprise Management Incentives (EMI)
• as announced in PBR 2009 legislation is to be introduced removing the requirement that the company granting EMI options operate “wholly or mainly” in the UK. The grantor will now simply require a “permanent establishment” in the UK.
company car benefits on zero and low emission cars
• a new 0% tax benefit for zero carbon emissions cars provided to employees.
• cars with CO2 emissions of less than 75g/km will be charged at 5%.
employer-supported childcare
• the rules will be relaxed to allow low-paid employees to take part in schemes where they would otherwise be prevented from doing so by the National Minimum Wage legislation.
value added tax
• registration threshold increased to £70,000 and deregistration threshold up to £68,000.
• postal services that the Royal Mail is required to provide under the Universal Service Provider licence will remain VAT exempt. Other services they supply that are not required under USP will be subject to standard-rate VAT.
• changes to the penalties regime for late filing will be phased in, but are unlikely to take effect until 2013/14.
• withdrawal of the Lennartz provisions on the non-business use of assets such as buildings has been confirmed.
personal tax changes
income tax
• The Chancellor repeated the changes he had already announced to income tax rates from April 2010.
• new 50% tax rate on income over £150,000.
• personal allowance abated for income over £100,000; fully withdrawn for income over £112,950.
• other thresholds including the personal allowances have been frozen (i.e. no inflation increase).
Capital Gains Tax
• main rate of Capital Gains Tax remains at 18%.
• from 6 April 2010 the lifetime limit for Entrepreneurs’ Relief is doubled to £2m.
• effective CGT rate with Entrepreneurs’ Relief remains at 10%.
Inheritance Tax
• The Chancellor reversed his previous plan to increase the IHT threshold and announced it will remain at £325,000 until April 2015.
other taxes
• 50p monthly tax on landline telephones to pay for the expansion of the high speed broadband network. Effective from October 2010.
pensions
• from April 2011 tax relief will be restricted on pension contributions for those earning more than £150,000 (including the value of employer contributions and charitable donations).
• for those earning between £150,000 and £180,000 higher rate tax relief will be gradually reduced. Earnings over £180,000 will only qualify for basic rate relief.
savings & investments
• ISA rates will increase to £10,200 for everyone from April 2010. Future annual increases will be in line with inflation.
• the cash limit will always be half the stocks and shares limit (therefore the maximum cash investment next year will be £5,100).
• UK Real Estate Investment Trusts (REITs) will be allowed the option to pay Property Income Distributions as stock dividends as well as in cash.
Enterprise Investment Scheme (EIS)
• minor changes to the EIS are to be introduced as a condition of their approval by the Commission as approved State Aid. Relief will not be available where the company would be treated as an “enterprise in difficulty”. The requirement that a qualifying trade is carried on “wholly or mainly” in the UK is removed and replaced by a requirement that the company must simply have a “permanent establishment” in the UK.
Venture Capital Trust
• as announced in PBR 2009 changes to the VCT scheme as agreed with the European Commission as a condition of their approval as approved State Aid is to be legislated for. Shares in the VCT must be admitted for trading on any EU regulated market rather than simply the Official UK List. The new legislation will increase the eligible shares holding requirement to 70% (from 30% of the VCTs qualifying holdings) but will change the definition of “eligible shares” to allow VCTs to include shares which may carry certain preferential rights to dividends.
Gift Aid
• income tax relief will be extended to donations to charities and certain similar organisations in the EU, Norway and Iceland.
• previously relief was restricted to UK charities only.
trusts
• tax rate applicable to trusts increases to 50% from April 2010.
• settlors who receive a tax repayment because their own tax rate is less than 50% will be required to repay the refund back to the trustees.
• such repayments will be disregarded for inheritance tax.
stamp duties
stamp duty land tax and stamp duty reserve tax
first time buyers
• a new relief for first time buyers is introduced with effect from Budget Day for purchases of residential property to be occupied as the only or main home where the consideration does not exceed £250,000.
new 5% rate
• a new 5% rate of Stamp Duty Land Tax (SDLT) is to be introduced from April 2011 for transactions in residential property where the consideration for the transaction exceeds £1m.
other minor changes include:
• a measure to facilitate the recovery of overpayments of SDLT where there is no other statutory route.
• powers to make regulations to remove multiple charges to Stamp Duty or Stamp Duty Reserve Tax will be clarified.
anti-avoidance measures
loans to participators
• legislation is to be introduced effective from Budget Day to deny a corporation tax deduction involving the release of loans to shareholders by close companies.
SDLT and partnerships
• the perceived exploitation of the SDLT partnership rules to reduce SDLT payable on certain land transactions is to be introduced from Budget Day. The rules are directed at “notional land transactions” created by way of a “contrived” partnership relationship.
Company Share Option Plans (CSOP)
• legislation is introduced with effect from Budget Day to prevent the use of options over shares in companies under the control of a listed company in a CSOP.
transaction in securities
• the transaction in securities legislation is to be redrafted with a view of providing clearer, more targeted legislation.
offshore tax havens
• increased penalties for individuals for tax avoidance where money has been hidden away in countries which don’t share information with the UK.
• penalties could be up to 200% of the tax due.
To view our Budget 2010 Summary publication, please click here
Please click here to view the 2010 tax fact card