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Budget report 22 June 2010

Personal Taxation and Savings

 

Income Tax bands and rates	2010/11	2009/10
Saving rate band	£2,440	£2,440
Savings rate	10%	10%
Basic rate band	£37,400	£37,400
Basic tax rate	20%	20%
Dividend ordinary rate	10%	10%
Higher rate band	£37,401 - £150,000	Over £37,400
Higher tax rate	40%	40%
Dividend higher tax rate	32.5%	32.5%
Additional rate band	Over £150,000	N/A
Additional tax rate	50%	N/A
Dividend additional tax rate	42.5%	N/A

 

Allowances that reduce taxable income		2010/11	2009/10
Personal allowances	under 65	£6,475	£6,475
	65 to 74	£9,490	£9,490
	75 and over	£9,640	£9,640
Blind person’s allowance		£1,890	£1,890
Age related allowances are reduced by £1 for each £2 of income above £22,900 (2009/10 £22,900), until the minimum of £6,475 (2009/10 £6,475) is reached.   The minimum personal allowance is reduced, by £1 for each £2 of income from £100,00 to £112,950.

 

Allowances that reduce tax		2010/11	2009/10
Married couple's allowance (MCA)	75 and over	£6,965	£6,965
Tax reduction at 10%		£696.50	£696.50
The age for MCA is of the elder spouse or civil partner.   The loss of tax reduction is 10p for each £2 of income above £22,900 (2009/10 £22,900) until the minimum of £267 (2009/10 £267) is reached.   All ages as at 5 April 2011.

 

The personal allowance and the basic rate limit for 2011-12

The following changes will have effect on or after 6 April 2011:

• The personal allowance for those aged under 65 will be increased by £1,000 to £7,475.
• The basic rate limit will be reduced so that higher rate and additional rate taxpayers do not benefit from the increase in the personal allowance. The exact figure will be confirmed when September’s retail price index is published.
• The alignment of the upper earnings/profits limit (UEL/UPL) with the higher rate threshold for income tax will be maintained by reducing the UEL/UPL.

Furnished holiday lettings

The proposal inherited from the previous Government to repeal the special tax rules for furnished holiday lettings will not be implemented.  The current rules continue to apply for the 2010-11 tax year.

State pension

The Government will uprate the basic State Pension by a triple guarantee of the highest of earnings, prices (CPI) or 2.5 per cent from April 2011.

Child benefits and tax credits

From 2011-12, the child benefit will be frozen for three years.

 

There will be a reduction in tax credit eligibility for families with household income over £40,000 as opposed to the current threshold of £50,000. However, low income families will get more child tax credit with the amount per child to rise by £150 above the rate of inflation next year.

 

The health in pregnancy grant is to be abolished from April 2011 and the Sure Start maternity grant will also be restricted to the first child.

Changes to the rules on the deduction of income tax at source

At present the rules on the deduction of income tax at source are set out in primary legislation. The Government will legislate for an amendment to the rules relating to the time and manner in which persons need to report and remit the income tax deducted from payments of interest, patent royalties and other annual payments. Companies making such payments will be unaffected by the change. The measure will have effect on or after the date that the Finance Bill receives Royal Assent. This will be after the 2010 summer recess.

UK Real Estate Investment Trusts (REIT’s) and stock dividends

At the moment it is not possible for a UK-REIT to issue stock dividends as property income distributions to meet the requirement of distributing 90% of the profits from the property rental business of the REIT. A change to the legislation will be made to enable stock dividends to qualify as property income distributions. The measure will have effect for property income distributions made on or after the date that the enabling legislation receives Royal Assent.

Transitional measure deferring the effective requirement to buy an annuity until the age of 77

The Government has announced that it will end the effective requirement to use a pension fund to buy an annuity by age 75 with effect from 2011-12. Prior to the introduction of these changes, legislation will be enacted to increase the requisite age from 75 to 77 with effect from 22 June 2010.  This change will also apply for the purposes of the inheritance tax charges that specifically apply to pension scheme members aged 75 and over.

 

For scheme members with money purchase arrangements who have not yet bought an annuity and reach age 75 on or after 22 June 2010:

• The strict minimum and maximum limits on income withdrawals will apply from their 77^th instead of their 75^th birthday;
• In the interim period before the main changes take effect in 2011-12, there will be tax charges of 35% on lump sum death benefits paid by the scheme if they die on or after 22 June 2010 and aged 75 or over.

Income tax adjustments between settlors and trustees

Individuals who set up trusts (settlors) currently may receive repayments of income tax on trust income if they are liable to income tax at a lower rate than the trustees. Such repayments that relate to trust income that arises on or after 6 April 2010 will need to be paid over by the settlors to the trustees.

Income tax: special guardianship orders and residence orders

Income from providing care is currently taxed under the trading income rules, or the rules for miscellaneous income – the carer may claim a fixed rate of expenses for each child placed with them. From 6 April 2010, the carer will be exempt from income tax on any qualifying payments they receive. The enabling legislation will be enacted after the 2010 parliamentary summer recess.

Personal savings – indexing ISA limits from 2011

From 6 April 2011 the ISA limits will be increased in line with the Retail Prices Index (RPI) on an annual basis. The cash ISA limit will continue to be half the value of the overall ISA limit. In the event that the RPI is negative, the ISA limit will remain unchanged.

 

For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

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