Income tax and personal savings
Income tax rates
In the 2009 Budget the Chancellor announced controversial plans to introduce an additional rate of income tax.
From 6 April 2010 income in excess of £150,000 will be subject to a new 50% top rate of income tax (42.5% on dividends). There is no change to the tax rates and bands for income of up to £150,000.
| 2010/11 | 2009/10 | |
|---|---|---|
| Basic rate band – income up to | £37,400 | £37,400 |
| Starting rate for savings | *10% | *10% |
| Basic rate | 20% | 20% |
| Dividend ordinary rate | 10% | 10% |
| Higher rate – income over | £37,400 | £37,400 |
| Higher rate | 40% | 40% |
| Dividend upper rate | 32.5% | 32.5% |
| Additional rate – income over | £150,000 | - |
| Additional rate | 50% | - |
| Dividend additional rate | 42.5% | - |
| *Starting rate is for savings income up to the starting rate limit of £2,440 within the basic rate band. The rate applies to any balance of the limit remaining after allocating taxable non-savings income. | ||
Personal allowances (ages are as at the end of the tax year)
| 2010/11 | 2009/10 | |
|---|---|---|
| Personal allowances (PA) – under 65 – 65 to 74 – 75 and over |
£6,475 £9,490 £9,640 |
£6,475 £9,490 £9,640 |
| Married couple's allowance (MCA) | ||
| Either partner born before 6 April 1935 (relief restricted to 10%) |
£6,965 | £6,965 |
The amount of the PA remains unchanged for 2010/11 – however:
- age-related allowances are reduced by £1 for every £2 that net adjusted income exceeds £22,900, to a minimum PA of £6,475
- the married couple's allowance is reduced by £1 for every £2 by which the income of the spouse or civil partner with the most income exceeds £22,900, subject to a minimum of £2,670 (highest income counts for the reduction)
- where income exceeds £100,000, the PA, including the minimum age-related allowances, is reduced by £1 for every £2 that net adjusted income exceeds £100,000.
Individual savings accounts (ISAs)
From 6 April 2010 the ISA limit will be raised to £10,200, up to £5,100 of which can be saved in cash. The higher limit was available to investors aged 50 and over from 6 October 2009.
From 6 April 2011 and over the course of the next Parliament, the annual ISA limits will increase each year in line with the RPI. The new annual limits will be rounded to the nearest multiple of 120 so that individuals who save monthly will be able to calculate their monthly savings more easily.
The new limits will be calculated by reference to the RPI for the September prior to the start of the tax year, and HMRC will announce the new limits as soon as possible after the RPI figure is published, and at least four months in advance of the start of the new tax year to which they will apply.
In the event that the RPI is negative, the ISA limits will be unchanged.
As is the case now, following indexation, the cash ISA limit will be half the value of the stocks and shares ISA limit.
Income tax adjustments between settlors and trustees
Income of certain trusts may be taxed as income of the settlor. The settlor may receive a repayment of tax on trust income if they are liable to income tax at a lower rate than the trustees. A proposed new measure, to be effective from 6 April 2010, will require settlors to pay any such repayments of tax they receive to the trustees. These payments to trustees will be disregarded for inheritance tax purposes.
Life insurance deficiency relief
Individuals may be entitled to the relief if their tax calculation on surrender of a policy or contract gives a negative result rather than a gain, but taxable gains have arisen earlier in the life of the same policy or contract.
A legislative change is required to ensure that those liable to the 50% income tax rate can obtain relief at their top rate of tax from 2010/11.
However, the deficiency relief triggered by the surrender of a policy on or after 6 April 2010 may be restricted. The restriction will apply if the main purpose of an individual being a party to arrangements is to secure a tax reduction greater than the income tax due on earlier chargeable events that led to the relief. This provision applies to arrangements made on or after 22 April 2009 that culminate in the surrender of the policy on or after 6 April 2010.
UK charity tax reliefs
Legislation will be introduced in Finance Bill 2010 to extend UK charitable tax reliefs to certain organisations equivalent to UK charities and Community Amateur Sports Clubs in the EU and in the European Economic Area countries of Norway and Iceland, following a judgment in the European Court of Justice in January 2009.
Remittance basis users
For those who use the remittance basis, foreign income or gains remitted through a “relevant person” are counted as remittances of the individual. The legislation will be clarified to ensure that the definition of “relevant person” includes a subsidiary of a non-UK resident company which would be a close company if it was resident in the UK.
There will also be a change to the treatment of losses on foreign currency transactions, where the disposal proceeds are liable to income tax, so that such losses will not be allowable losses. This change was announced on 16 December 2009 and will be effective from that date.
Increased penalties for offshore tax evasion
The Chancellor announced tough 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. Penalties for non-compliance will be linked to the tax transparency of the jurisdiction in which the non-compliance arises.
Where the non-compliance occurs in a jurisdiction which:
- has provision to exchange information on savings income automatically with the UK, the penalty percentages will be the same as for non-compliance arising in the UK
- has agreed to exchange information with the UK, but does not automatically share that information, the penalty percentages will be 1.5 times those applying for non-compliance arising in the UK
- has not agreed to exchange information with the UK, the penalty percentages will be doubled.
Pension savings
Anti-forestalling provisions, restricting higher and additional rate tax relief for higher-earners, will continue to operate through 2010/11.
With effect from 6 April 2011, people with annual income of £150,000 or over but below £180,000 will have their tax relief on pension contributions (including the value of employer contributions for those in employment) reduced gradually from the individual's marginal rate to the basic rate as income increases. Where income is £180,000 or over, the measure restricts tax relief on pension contributions to the basic rate.
For these purposes, income is calculated before deductions for pension contributions and charitable donations and, for those in employment, includes the value of any pension benefit funded (or eventually funded) by their employer.
New time limits for reclaiming overpaid tax
From 1 April 2010 the time limits for claiming back tax relating to an earlier year will be reduced to four years for those who complete self assessment Tax Returns. For those outside of self assessment the time limits will change in 2012. During the transitional years, the deadlines for each type of taxpayer are given in the table below.
| Tax year | Self Assessment Taxpayers | Non-Self Assessment Taxpayers |
|---|---|---|
| 2004/05 | 31 March 2010 | 31 January 2011 |
| 2005/06 | 5 April 2010 | 31 January 2012 |
| 2006/07 | 5 April 2011 | 31 March 2012 |
| 2007/08 | 5 April 2012 | 5 April 2012 |
| 2008/09 | 5 April 2013 | 5 April 2013 |
If you need to claim tax back from previous years you should write to your Tax Office and include any relevant documents about your income during the tax year for which you are claiming.
