Budget Briefing 2011
The main budget highlights for 2011 are as follows:
Personal Income Tax
There are no personal tax increases.
The top rate of tax is to remain at 50% for the time being. From 6 April 2011, it is proposed to increase the personal allowance to £7,475 and the basic rate limit is to be set at £35,000, and the higher rate of 40% will apply between £35,001 and £150,000. From 6 April 2012, the personal allowance will be raised to £8,105 and the basic rate limit is to be set at £34,370.
From April 2011 loss relief may only be offset against income from the same Furnished Holiday Lettings (FHL) business. UK losses can relieve UK FHL income only. European Economic Area (EEA) losses can relieve EEA FHL only.
Enterprise Investment Scheme (EIS)
It is proposed to increase the rate of income tax relief given under the EIS from 20% to 30% from 6 April 2011. This is subject to State aid approval and further changes proposed for 2012/13.
Capital Gains Tax (CGT)
Entrepreneurs’ Relief (ER)
It is proposed to increase the lifetime limit on gains qualifying for ER from the current £5 million to £10 million from 6 April 2011. Qualifying gains will continue to be taxed at an effective rate of 10%.
CGT Annual Exemption
From 6 April 2011 the annual exemption for CGT will increase to £10,600 in line with the current indexing formula.
The annual exemption formula will continue to apply with a procedural change to allow an increase in years where the indexation formula does not require an increase.
The inheritance tax nil rate band is frozen at £325,000 until April 2015. From April 2015 it is proposed to use the Consumer Prices Index as the default indexation.
A reduced rate of inheritance tax will apply when 10% or more of a deceased’s net estate is left to Charity. Effectively, this would reduce the 40% tax rate to 36% for deaths occurring on or after 6 April 2012.
Non Domiciled Individuals
The ‘nondom’ charge is being increased to £50,000 for those who have been in the country 12 years.
It is proposed to retain the £30,000 charge for those who have been resident for at least seven of the past nine years but, fewer than 12 years.
It is intended to review the ‘nondom’ charge where foreign income (or capital gains) are brought into the UK. A consultation period will commence in June 2011, with a view to removing the charge when foreign funds are subsequently invested in UK Businesses.
The Government is also looking at establishing a statutory residency test and will be consulting on this over the coming year.
Stamp Duty Land Tax
It is proposed to provide relief for purchasers of more than one dwelling by aggregating the consideration and dividing by the number of dwellings.
It is proposed from 24 March 2011 that SDLT avoidance schemes will be countered by:
1. Clarifying the relationship between the rules for ‘subsales’ and alternative finance;
2. Narrowing the definition of ‘financial institutions’ for alternative finance; and
3. Countering engineered reductions in market values when properties are exchanged.
From 20112012, the annual allowance for tax relief on pension savings for individuals will be reduced from £255,000 to £50,000, and the lifetime allowance will be reduced from £1.8m to £1.5m from 201213.
Individuals with charges above £2,000 will be able to elect for their liability to be met from their pension benefit.
From April 2011, the Government has proposed to remove the effective requirement for pension policyholders to purchase an annuity by age 75.
It is proposed to increase the Gift Aid donor benefit limits from £500 to £2,500, being the maximum value of the benefits that individuals and companies may receive having made a Gift Aid donation to charity of more than £10,000.
The limit for 2011/12 is £10,680 of which up to £5,340 can be saved in cash.
A new tax-advantaged account for saving for children, to be known as a Junior ISA, is expected to be available from Autumn 2011 for any UKresident child who does not currently hold a Child Trust Fund.
Disclosure Of Tax Avoidance Schemes (DOTAS)
The Government aims to extend the DOTAS provisions to include Inheritance Tax schemes as from 6 April 2011. The scheme already applies to a number of hallmark areas that are also to be updated. This includes those concerning income tax and NIC on employment income, schemes that incorporate offshore transactions to avoid corporation tax and artificial loss schemes.
The Government proposes to make the following reductions to the main rates of corporation tax:
• Reduced to 26 per cent for 2011/12; and
• reduced to 25 per cent for 2012/13.
The small profits rate of corporation tax will be reduced to 20 per cent from 1 April 2011.
Corporate Gains: Antiavoidance
From 23 March 2011 it is proposed to prevent groups of companies avoiding corporation tax on chargeable gains by using arrangements that seek to exploit the “associated companies exemption” to a degrouping charge. Rules will also be changed to simplify the calculation of the chargeable gains.
Time to Pay
The Government confirmed that HMRC will continue to provide its Business Payment Support Service to provide advice and time to pay to businesses experiencing temporary financial difficulty.
Enterprise Zones – Business rate discounts
The Government has announced the creation of 21 new Enterprise Zones. The Government will offer up to a 100% business rate discount for five years to businesses located in Enterprise Zones.
Extension of Small Business Rate Relief (SBRR) holiday
The SBRR holiday will be extended by one year from 1 October 2011.
Future Tax Changes For 2012/13
The Government has outlined a number of proposed changes for 2012/13 and we will provide a further update on these changes at a later date.
This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.