2009 Pre Budget Report
As expected there were few significant changes in the 2009 pre budget report and it looks as though they won't make tax hikes until after the next general election. We've summarised below some of the main changes announced in the 2009 PBR as they will effect our members. We'll be providing detailed members only articles and answering members specific PBR tax questions. Bank payroll tax They're to introduce a new 50% tax on employee bonuses above £25,000 payable by banks and building societies. This will be paid by the bank and will be in addition to the usual income tax charge on the employee. It will apply to bonuses paid from 9 December 2009 up to 5 April 2010 (but it may then be extended). Reducing tax relief on pensions if earning over £130,000 As from April 2009 anti forestalling rules restricted tax relief on pension contributions for anyone earning over £150,000. As from 9 December 2009, the special annual allowance and tax charge will also apply to those with income of £130,000 or over, for the tax year or for either of the two preceding tax years. Seafarer earnings deduction extended The Seafarers' Earnings Deduction can provide 100 per cent UK tax relief for the earnings from carrying out duties as a seafarer outside the UK. One of the qualifying conditions for the Seafarers' Earnings Deduction is that the individual must be ordinarily resident in the UK. This condition will be extended so that seafarers who are EU or EEA residents can claim the Seafarers' Earnings Deduction on their earnings as a seafarer that are liable to UK income tax This will be of limited impact for most members as seafarers are defined as anyone whose employment consists of 'the performance of duties on a ship (or of such duties and of others incidental to them'). It specifically doesn't include anyone working on offshore installations eg oil rigs and therefore it's restricted to anyone working on a ship (eg cruise ship employees, fishermen, certain marine biologists etc). IHT nil rate band to be frozen The IHT nil rate band will be frozen for 2010/2011 at £325,000 and won't be increased to £350,000 as expected. IHT and trust avoidance They are to introduce provisions to stop tax avoidance schemes where individuals either transfer assets into a trust and they retain a future interest, or where they purchase interests in trusts. Corporation tax to remain at 21% Corporation tax was to rise to 22% from April 2010. This will no longer apply and it will remain at 21% until April 2011. The 28% main rate of corporation tax is untouched and therefore the marginal rate for profits between £300K and £1.5M will remain at 29.75%. Income tax rates and thresholds to stay the same for 2010/2011 The rates of income tax (20%, 40%) will remain the same as will the personal allowances (ie basic personal allowance will still be £6,475). The new 50% income tax rate will still apply on earnings above £150,000. The new dividend tax rate of 42.5% will also still apply on dividends above £150,000. Clarification of the furnished holiday rules Furnished holiday lettings will be taxed as standard rental properties as from April 2010 as previously announced. The PBR did clarify some of the previously unexplained issues eg any losses will be carried forward against rental profits and capital allowances can be claimed on pre 2010 expenditure. Anti avoidance rules on offshore accounts They've released a consultation document asking for views on how to legislate in this area. In particular they're thinking of introducing penalties of up to 200% for certain undisclosed income and gains from offshore accounts. This is very early stages and we'll need to see what the result of the consultation is however they've mentioned: Penalties for offshore non complianceNotification for holders of offshore accounts in certain jurisdictions. They've not named any names but have stated it would apply to accounts in jurisdictions where there are not suitable exchange of information agreements. There would be a de minimis limit below which there is no notification (they mentioned £25,000). Potentially extending the notification requirements to offshore companies and trustsNote that non doms using the remittance basis won't be subject to the notification rules. Stamp duty holiday not extended The increase in the stamp duty exemption to £175,000 won't be extended. From 2010 only properties priced at below £125,000 will escape the tax, with the 1 per charge applying at that threshold and increasing to 3 per cent at £250,000 and 4 per cent at £500,000. NIC rates to increase As well as the 0.5% increase they announced in the 2008 PBR they've proposed a further increase of 0.5% from April 2011. From 2011/2012, this increases the main rate of Class 1 and 4 NICs by a further 0.5 per cent to 12 per cent and 9 per cent respectively. This also means that all employees earning over broadly £40,000 face an uncapped 2% NIC charge on all their earnings. End of 15% VAT rate The VAT rate will go back up to 17.5%^ as from 1 January 2010. New 10% corporation tax rate on patent income They've proposed a special 10% rate of corporation tax on patent income for companies. This won't apply until 2013 though. Note that there were no changes to the rate of capital gains tax.
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