Savings and Investments
Enterprise Management Incentives
To ensure that the enterprise management incentive (EMI) share option scheme complies with EU State aid guidelines, legislation will be introduced in a Finance Bill as soon as possible after the summer recess to remove the need for a company granting EMI options to operate wholly or mainly in the UK. Instead, the company will only need to have a permanent establishment in the UK. In the case of a parent company, at least 1 company in the group that is carrying on a qualifying trade must have a permanent establishment in the UK.
A company has a permanent establishment in the UK if it has a fixed place of business in the UK through which the business of the company is wholly or partly carried on, or it has an agent in the UK who exercises authority to do business on behalf of the company.
This will have effect in respect of EMI share options granted on or after the date that the legislation receives Royal Assent.
Venture Capital Schemes
Changes will be made to the rules on enterprise investment schemes (EIS) and venture capital trust (VCT) schemes to comply with European Commission requirements on State aid.
Legislation to be included in a Finance Bill to be introduced as soon as possible after the summer recess will:
- exclude any ‘enterprise in difficulty’ from qualifying for investment under the rules for EIS or VCT schemes;
- remove the condition in both schemes that the qualifying trade must be carried on wholly or mainly in the UK and replace it with a requirement that the company issuing the shares has a permanent establishment in the UK. The definition of ‘permanent establishment’ will be based on Article 5 of the OECD Model Tax Convention on Income and Capital.
The term ‘enterprise in difficulty’ takes its meaning from the European Commission’s Rescue and Restructuring Guidelines.
The legislation will also make the following changes applicable only to VCT schemes:
- at least 70% of the VCT’s qualifying holdings will have to be holdings of eligible shares (an increase from the current 30% minimum);
- the definition of eligible shares will be expanded to include shares which may carry certain preferential rights to dividends;
- the ordinary share capital of the VCT must be tradable on any EU regulated market (rather than only being included in the official UK list as at present).
All these changes will have effect on or after a date to be appointed. The ‘eligible shares’ changes for VCTs will not affect the investment of monies raised by a VCT before that commencement date. The ‘permanent establishment’ condition for both EIS and VCT schemes will apply to shares issued on or after the commencement date.
UK Real Estate Investment Trusts and Stock Dividends
The rules on distributions by UK Real Estate Investment Trusts (REITs) are to be relaxed. Currently, in order to meet the conditions to qualify as a REIT, the company (or group of companies) must distribute at least 90% of the profits from its rental business to its shareholders by way of a cash dividend. Under the new rules, any stock dividends issued by the REIT to its shareholders will also be included to determine if 90% of the profits have been distributed. The legislation will be included in a Finance Bill to be introduced as soon as possible after the summer recess, and will have effect for property income distributions made on or after the date of Royal Assent.
Indexing Individual Savings Account Limits from 2011
With effect from 6 April 2011 the ISA limits will be increased in line with the Retail Prices Index (RPI) on an annual basis. The limits will then be rounded to a convenient multiple of 120, to facilitate calculation of a monthly savings figure.
The new limits will be calculated by reference to the RPI for the month of September before the start of the following tax year, e.g. the limit for 2011/12 will be set by reference to the RPI in September 2010. If the RPI is negative, the ISA limit will remain unchanged. HMRC will announce the new limits in advance of the start of the new tax year in which they apply.
The cash ISA limit will remain half the stocks and shares limit, e.g. for 2010/11, the cash ISA limit is £5,100, the stocks and shares ISA limit is £10,200.
Pensions Tax Relief
Finance Act 2010 included legislation to restrict relief given at above the basic rate on pension provision for 2011/12 onwards by high income individuals. The new Government is to continue with this plan for the time being, but will also be considering, in consultation with interested parties, possible alternative means of raising the same tax revenue. One alternative would be to significantly reduce the pension annual allowance (currently £255,000) to somewhere in the range of £30,000 to £45,000. The Government is to include powers in the next Finance Bill to repeal the legislation contained in Finance Act 2010; it should be noted that this is not to say the legislation will, in fact, be repealed.
Deferral of Maximum Age to Purchase Pension Annuity to 77
The Government is to end the requirement to use a pension fund to buy an annuity by age 75, with effect from 2011/12.
The change will be effective from 22 June 2010 for pension scheme members who are under age 75 at that date.
Income drawdown limits which now apply from age 75, will in future apply from age 77; and IHT charges currently applicable when scheme members die on or after their 75th birthday will also be affected.
The Government will consult on the changes and will introduce transitional measures for those reaching age 75 before the new rules are finalised.
National Employment Savings Trust
As announced in the March 2010 Budget, the National Employment Savings Trust (NEST) will be allowed to register as a pension scheme with HMRC, allowing the members and their employers to benefit from tax relief on contributions and investment growth.
The change will be included in the autumn Finance Bill and will be effective from the date the Bill receives Royal Assent.