Budget Summary 2010
March 26th, 2010 Company News, News, ObservationsIn our summary we will look at key measures that are and are not changing, new measures and previously announced measures about to come into force and how they may affect you.
What is staying the same?
The Individual Personal Allowance will remain as it is for the coming tax-year, at £6,475 for those under age 65, plus age related allowances for those who are older.
The Implication. Although tax rates have stayed the same, inflation has increased by more 3%. Thus any pay rises individuals may secure in the coming year will be subject to a higher level of taxation in ‘real terms’.
Capital Gains Tax remains unaltered at 18% and the individual’s annual CGT allowance remains at £10,100.
The Implication. Any gains realised in the 2010/11 tax-year, will not benefit from any degree of inflation proofing before being taxed, as the CGT Allowance has not been extended. We do have both retrospective and forward planning strategies to defer, mitigate and even avoid CGT.
The Inheritance Tax (IHT) threshold will remain at the current level until at least the 2014/15 tax-year.
The Implication. On the assumption that property values and investment portfolio’s continue to recover and grow over the coming years, an increasing number of estates will become exposed to IHT and those already of sufficient value to be subject to IHT will be more so. We have a number of planning strategies available to us to reduce these liabilities if they are of concern to you. (Alternatively, you could simply resort to spending your children’s inheritance).
The Lifetime Allowance for pensions will also remain frozen at £1.8 Million until and including the 2015/16 tax-year.
The Implication. This sum represents the combined value of an individual’s pension pot. It is the cash value of an individual’s money purchase schemes. As for those in a final salary scheme who have not yet drawn benefits from the scheme, the general calculation is the pension one is entitled to at retirement age, multiplied by 20, plus any tax-free cash entitlement. When this legislation first came into being, we assisted those of our clients who would or might have been forecast to be at risk. However, the freezing of the Lifetime Allowance for such a long period is likely to trap many more as their salaries and thus benefits grow. This may result in punitive tax penalties if appropriate action is not taken. If you feel you may now be at risk, we are able to analyse your situation and advise on the best course of action.
The car scrappage scheme ends on March 31st.
The Implication. The car industry will now need to stand fully on its own feet. The next 12 months will be very telling, as it will provide a genuine reflection of demand and affordability, which will in turn feed into the over-capacity there is in motor manufacturing. This in turn may lead to further consolidation or even failure of weaker manufacturers.
What is changing?
For first time buyers, Stamp Duty Land Tax is removed as an interim measure for purchases of residential property up to £250,000 where the property is to be the only or main residence of the individual. This will continue until 25th March 2012.
To help pay for this, a new band of Stamp Duty is to be implemented with effect of April 6th 2011. It will be 5% on residential property transactions in excess of £1,000,000.
The Implication. A useful helping hand for first time buyers at a time when they are having to find bigger deposits and hopefully a small stimulus to the property market. The introduction of the 5% band may well lead to a small rush for property completions toward the end of the 2010/11 tax-year to avoid the additional cost.
Air Passenger Duty is set to increase with effect from November 2010 by a sum yet to be disclosed.
The Implication. More expensive flights.
The impending previously announced 3 pence per litre Fuel Duty increase, is now to be phased in over three stages, 1p in April, 1p in October and 1p in January.
The Implication. More expensive fuel!! It is also worth noting the ‘temporary’ increase in fuel duty of 2p applied to compensate for loss of revenue from fuel sales when the VAT rate was temporarily reduced, was not removed when the VAT rates were later increased. Given the need to raise additional revenue, this was not unexpected.
ISA contribution limits which were already to increase for all to £10,200 with effect from April 6th will at the start of each subsequent tax-year increase approximately in line with RPI.
The Implication. An increasing opportunity to save in a tax advantaged environment. Individuals should temper their enthusiasm for such contributions with the thought that all monies held in ISA’s upon the holder’s death will form part of the individual’s estate for the assessment of any IHT liability. In short a useful fillip but one that should be considered in context with ones circumstances and overall objectives.
Entrepreneurs Relief has now been extended to a lifetime allowance of £2,000,000 gain which would be subject to 10% CGT instead of 18%.
The Implication. An encouragement for entrepreneurs to build businesses to sell. It encourages them to leave profits in the business to build greater growth and avoid the high Income Taxes they would incur by taking salaries and dividends, instead taking those profits on the later sale of the business. The benefit to the economy will be the people they employ and the PAYE taxes and National Insurance their businesses will contribute to the Treasury’s coffers.
Previously Announced Changes Now Coming Into Force;
A Land Line Duty of 50p per month per land line will be levied with effect from October 1st.
The Implication. The increased cost of telephony. Though, if the money is actually all spent on the stated purpose of significantly improving the access to high speed broadband throughout the country, then this should in the longer term provide an important boost to the economy particularly in smaller communities and, in the shorter term, lead to lots of traffic jams as our roads are dug up again.
A higher tax rate for those whose income is greater than £150,000. In such cases a 50% Income Tax will be applied to most income above that level and 42.5% on dividends.
The Implication. A significant increase in tax payable by those whose income falls into this bracket. It remains to be seen whether it will raise the desired levels of revenue, or whether it will lead to the individuals concerned adopting a more aggressive approach to tax mitigation or even emigrating to more benign tax environments. For those of you affected who do wish to take action, we do have a number of tax mitigation strategies which may be appropriate for you.
N.B. It is worth noting that all ‘income’ to trusts will be taxed at 50%, except dividends, which will be taxed at 42.5%. We would strongly advise all trustees to review the holdings in the trusts they manage to review their ongoing appropriateness going forward, as there is scope to eliminate much of this tax liability through judicious use of alternative tax wrappers. This is an area in which we have a great deal of success.
The Progressive Removal of the Personal Allowance for individual’s whose ‘adjusted net income’ exceed £100,000, comes into force as of April 6th.
The Implication. In such cases, for each £2 an individual’s earnings go above the threshold, they will lose £1 of their £6,475 personal allowance. Thus, once the individual’s earnings have reached £112,950, they will have no personal allowance left. In effect this could be viewed as a 60% tax rate on this element of income.
