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Summary of 2010 Budget
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Summary of 2010 Budget
24/03/2010
We've had the 2010 'Pre Election' Budget Report today, and in this article we summarise some of the key changes as they'll affect our members. We'll be producing articles on any important aspects in the next week or so based on any members requests. Extension of Entrepreneurs Relief to £2M The Entrepreneurs Relief band for 2009/2010 was £1,000,000. This gives shareholders selling shares in their personal trading companies a lifetime limit of £1M for Entrepreneurs Relief purposes. Any qualifying gains within this limit qualify for a 4/9 tax exemption. As CGT is then charged at 18% this effectively provides for a 10% rate of CGT on gains within the Entrepreneurs Relief limit. By increasing the Entrepreneurs Relief limit to £2,000,000 this would save a shareholder £80,000 in CGT on a disposal that incurred a £2,000,000 capital gain. It could also be useful for: Anyone who's already sold shares and utilised the previous £1M limit. They now have another £1M Entrepreneurs Relief allowance to play with.Anyone with substantial cash tied up within their own company. When the company is wound up the extraction of cash can be as a capital distribution and subject to CGT, not income tax. They could therefore extract cash of up to £2M and pay CGT at 10% (£200K CGT) rather than income tax of £720K if it was extracted as a dividend (based on the new rates of super tax for large dividends). This change has effect for disposals on or after 6 April 2010. Most Tax Rates/Allowances To Remain The Same The income tax rates and allowances will remain as expected. Therefore we have a £37,400 basic rate tax band and the £150,000 'Super' tax band. The rates remain as 10%, 20%, 40% and 50%. CGT & NIC rates remain the same. Stamp Duty Threshold Increased There's been two key changes to stamp duty: Firstly there is a new 5% rate for purchases of residential property where the consideration exceeds £1 million. This will apply where the date of completion is on or after 6 April 2011. Secondly there is a complete relief from stamp duty for purchases of residential property at up to £250,000 where the purchaser or all the purchasers are first time buyers and intend to occupy the property as their only or main home. This relief is limited to two years and will therefore only be available for purchases between 25 March 2010 and before 25 March 2012 There's no real guidance on how this will be interpreted but its clear from the Budget Notes that it will only apply to someone occupying the property as their first main residence. Freezing IHT Nil Rate Band For 4 Years They've extended the freezing of the IHT nil rate band for 4 years. Therefore it will be set at £325,000 for 2010/2011 to 2014/2015.
Annual Investment Allowance Doubled The annual investment allowance is effectively a 100 per cent allowance that applies to qualifying expenditure up to an annual limit or cap. Where businesses spend more than the annual limit, any additional expenditure is dealt with in the normal capital allowances regime, entering either the main rate or the special rate pool, where it will attract tax allowances at the 20 per cent or 10 per cent rate respectively. As from April 2010 the AIA limit will be increased from £50,000 to £100,000. On the assumption that the additional £50K would have qualified for a 20% tax allowance this could therefore result in an additional deduction of £40K in the first tax year. If you paid tax at 50% this could save income tax of £20K. It would however only be a cash flow benefit as you'd have received the full tax relief over the lifetime of the asset in any case. The AIA just brings the relief upfront. If your accounting period straddles April 2010 you need to apportion the two allowances. Offshore evasion As the Government is tough on offshore evasion they've announced new penalties for individuals who fail to pay taxes due on offshore income or gains, with penalties of up to 200 per cent of tax for deliberate and concealed evasion. Interestingly you'll be charged a higher penalty if the offshore jurisdiction doesn't automatically exchange information with the UK. Given the number of exchange of information agreements this presumably is intended to punish investors in the less well regulated countries. Loan releases won't qualify for corporation tax deduction Under the current corporation tax rules companies obtain relief for all interest and other financial transactions under the loan relationship provisions.
Where a close company (which includes most small companies) makes a loan to a shareholder there is a corporation tax charge on the company. Where the loan is waived this can currently qualify for tax relief for the company under the loan relationship provisions. This will no longer be the case. The position of the shareholder will not be changed and the debt waiver/release would still be taxed as a distribution/dividend on them.
Non doms - extension of relevant person When assessing whether there has been a remittance the rules broadly state that you see if a UK relevant person has benefited from the unremitted income or gains. A relevant person is widely defined and includes the individual, their spouse, civil partner, children and grandchildren under the age of 18. It also covers close companies and their subsidiaries in which such persons are participators. However, HMRC were concerned that it was not stated that references to a close company are intended to include subsidiaries of non-resident companies which would be close companies if they were resident in the UK. Therefore they've now extended the definition to include such companies. So there you have it. Aside from the Stamp Duty, Increase in AIA and Entrepreneurs Relief increase most of the rest was pretty much as expected and there were no real surprises.
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