Income tax and personal savings
From 6 April 2010 income in excess of £150,000 is subject to a new 50% additional rate of income tax (42.5% on dividends).
| 2010/11 | |
|---|---|
| Basic rate band – income up to | £37,400 |
| Starting rate for savings | *10% |
| Basic rate | 20% |
| Dividend ordinary rate | 10% |
| Higher rate – income over | £37,400 |
| Higher rate | 40% |
| Dividend upper rate | 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. | |
*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.
The Chancellor announced that the basic rate band for 2011/12 will be reduced so that higher rate taxpayers do not benefit from the increase in the personal allowance. The exact figure will be announced later.
Personal allowances (ages are as at the end of the tax year)
| 2010/11 | |
|---|---|
| Personal allowances (PA) | |
| under 65 | £6,475 |
| 65 to 74 | £9,490 |
| 75 and over | £9,640 |
| Married couple's allowance (MCA) | |
| Either partner born before 6 April 1935 (relief restricted to 10%) |
£6,965 |
Age-related allowances are reduced by £1 for every £2 that adjusted net income exceeds £22,900, to a minimum PA of £6,475.
The MCA 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.
For 2011/12, the PA for those aged under 65 will be increased to £7,475. The basic rate limit will be reduced so that higher rate tax payers do not benefit from the increase in the PA.
Individual Savings Accounts (ISAs)
Changes to the way the annual ISA limit is set were announced on 24 March 2010, but were not included in the original 2010 Finance Act. The Chancellor has confirmed those changes will be carried through.
Furnished Holiday Lettings (FHL)
The Chancellor announced that the proposed withdrawal of the FHL rules from April 2010 will not take effect.
A consultation will take place over the summer of 2010 about plans to change the tax rules for FHL from April 2011. The consultation will specifically look at:
- ensuring the FHL rules apply equally to properties in the European Economic Area (EEA)
- increasing the number of days that qualifying properties have to be available for, and actually let as, commercial holiday letting; and
- changing the way in which FHL loss relief is given.
Non-domiciliaries
As announced in the Coalition Agreement, the Government is to review the taxation of non-domiciled individuals.
Life insurance deficiency relief
The Government will not extend life insurance deficiency relief to the 50% additional rate of tax. Instead, relief will reduce tax on income subject to the higher rate (40%) and dividend upper rate (32.5%), only.
Managed Payment Plans
The Chancellor has announced a deferral, from the proposed date in 2011, of the implementation of Managed Payment Plans (MPPs).
MPPs will allow taxpayers to pay self-assessed income tax and corporation tax in a series of monthly payments either side of the theoretical due date.
Income tax adjustments between settlors and trustees
A measure announced on 24 March 2010, which would require settlors to pay to the trustees of trusts certain repayments of tax received on or after 6 April 2010 was not enacted in the original 2010 Finance Act. This will be legislated for in the next Finance Bill.
Deduction of income tax at source
Legislation is being introduced to alter the way that individuals and other non-corporates making payments of interest, patent royalties or other annual payments, account for the tax they are required to deduct at source.
Currently where a person makes a payment of interest etc, from which income tax is required to be deducted, they are required to deliver an account of that payment to HMRC without delay. The new legislation will give HMRC the power to regulate as to when and how a person should report the income tax deducted. This is likely to result in a fixed reporting timetable.
Pension savings
The Government proposes cancelling the introduction of the high income excess relief charge, which would have applied from 6 April 2011, and replacing it, principally, with a reduced annual allowance as a means to restrict pensions tax relief.
The requirement to buy an annuity by age 75 is to end, with effect from 2011/12. In the interim, the age by which an annuity must be purchased or an income secured is increased, with effect from 22 June 2010, to 77, so long as the individual had not reached the age of 75 before 22 June 2010. The same changes will also apply for inheritance tax (IHT) purposes to members who die on or after 22 June 2010.
National Employment Savings Trust (NEST)
It has been re-announced that changes will be made to the pensions tax legislation as soon as possible to enable the NEST to operate as a registered pension scheme. This is the Government's new flagship pension scheme to encourage people to save for retirement. The measures will:
- allow NEST to register with HMRC for tax purposes, and to be subject to the same tax rules as other tax-registered pension schemes
- remove the tax liability on any interest charges on late pension contributions made by an employer to qualifying pension schemes
- provide a regulation-making power to deal with any unintended tax consequences that may emerge as a result of the implementation of NEST and the employer duties and compliance as set out in the Pensions Act 2008
- remove the tax charge on borrowing linked to the cost of establishing and operating a registered pension scheme, subject to conditions.
Trusts for asbestos victims
The Government confirmed its commitment to measures proposed in the March 2010 Budget to introduce legislation to help trusts specifically set up to compensate asbestos victims, but which have been unable to access tax-efficient structures for the benefit of victims. The legislation will apply retrospectively to April 2006.
