2009 Budget Changes
The 2009 Budget has included a number of amendments and proposals to be introduced over the next year or two. Here's some of the key changes:
New 50% Rate of Income Tax
In the 2009 Budget Report a new 50% rate of income tax was announced on anyone earning over £150,000 per tax year. It won't apply though until 6 April 2010.
It will apply to all types of earnings so will include:
Employees
Anyone with substantial investment income
Traders with substantial trading profits
Note that dividends are excluded from this list. They'll still be caught but will be taxed at a new 42.5% rate of income tax. This equates to an effective income tax rate of 36.1%.
This makes the distinction between trader and investment status even more crucial. Traders could be taxed at 50% if they make substantial profits whereas investors would be taxed at 18%.
Reduced personal allowances for anyone earning over £100K
They've changed the previous proposal originally announced in the pre budget report and as from April 2010 anyone earning over £100K will see their personal allowance reduced -- potentially to nil.
Increased capital allowances
If you run a business and invest in business assets in excess of the £50,000 annual investment allowance you'll qualify for 40% immediate tax relief (rather than 20% under the previous system).
Withdrawal of personal allowance for certain non residents
You can currently claim the UK personal allowance if you're a UK citizen. This is to be withdrawn and you'll therefore only qualify for the personal allowance if you qualify on some other basis. Luckily most non residents will qualify under a double tax treaty.
If you're resident in a country which doesn't have a tax treaty with the UK or if the tax treaty doesn't provide for the UK personal allowance (eg the Bahamas treaty) you would lose the UK personal allowance when calculating any UK income tax charge. This doesn't effect the CGT annual exemption.
Changes to the remittance basis of tax for non doms
Nothing substantial here basically just extending the 'exempt asset' rules and when you don't have to complete a return. We'll look at this separately shortly.
EIS & VCT changes
Changes to how the company/VCT needs to use the money so that it will be easier to qualify (it now needs to use the money within 2 years rather than the previous 12 month requirement for 80% of the investment).
Tax on overseas dividends It extends the 1/9 tax credit to UK residents obtaining overseas dividends even though they may own more than 10% of the shares in the company. New provisions also extend the 1/9 tax credit to dividends from offshore funds. Changes to furnished holiday lets The Government has decided it should repeal the FHL rules from 2010-11. Until the FHL rules are repealed, HMRC will regard the FHL rules as applying to furnished holiday accommodation elsewhere in the EEA. Therefore for the current tax year certain overseas FHL's can qualify for the UK tax benefits (ie Entrepreneurs Relief, Gift relief etc) Publishing tax defaulters The names and details of tax defaulters deliberately understating tax due by more than than £25K will be published. SDLT Threshold The SDLT threshold will be increased to £175K until 31 December 2009 Tax relief for pensions Provisions to restrict, to the basic rate of income tax, tax relief on pensions savings with effect from 6 April 2011 for people with taxable income of £150,000 or more. Agricultural property relief & woodlands relief changes Changes to both of these reliefs to allow investments to qualify for the inheritance tax exemption even though the investments were in land situated overseas (provided it's in the EEA). The land will also qualify for CGT gift relief allowing overseas land to qualify for a CGT exemption on transfers to other family members (in certain circumstances). Changes to the ISA limits The ISA limits are to be increased to £10,200, of which up to £5,100 of can be saved in cash. The new limits will apply to people aged 50 and over from 6 April 2009 and for all other ISA investors from 6 April 2010. Three year loss carry back for businesses/companies The new provisions will allow a 3 year carry back for losses in tax years 2008/2009 and 2009/2010. This is in contrast to the usual 1 year loss carry back rule.
Tax on overseas dividends It extends the 1/9 tax credit to UK residents obtaining overseas dividends even though they may own more than 10% of the shares in the company. New provisions also extend the 1/9 tax credit to dividends from offshore funds. Changes to furnished holiday lets The Government has decided it should repeal the FHL rules from 2010-11. Until the FHL rules are repealed, HMRC will regard the FHL rules as applying to furnished holiday accommodation elsewhere in the EEA. Therefore for the current tax year certain overseas FHL's can qualify for the UK tax benefits (ie Entrepreneurs Relief, Gift relief etc) Publishing tax defaulters The names and details of tax defaulters deliberately understating tax due by more than than £25K will be published. SDLT Threshold The SDLT threshold will be increased to £175K until 31 December 2009 Tax relief for pensions Provisions to restrict, to the basic rate of income tax, tax relief on pensions savings with effect from 6 April 2011 for people with taxable income of £150,000 or more. Agricultural property relief & woodlands relief changes Changes to both of these reliefs to allow investments to qualify for the inheritance tax exemption even though the investments were in land situated overseas (provided it's in the EEA). The land will also qualify for CGT gift relief allowing overseas land to qualify for a CGT exemption on transfers to other family members (in certain circumstances). Changes to the ISA limits The ISA limits are to be increased to £10,200, of which up to £5,100 of can be saved in cash. The new limits will apply to people aged 50 and over from 6 April 2009 and for all other ISA investors from 6 April 2010. Three year loss carry back for businesses/companies The new provisions will allow a 3 year carry back for losses in tax years 2008/2009 and 2009/2010. This is in contrast to the usual 1 year loss carry back rule.