Income Tax Changes for 2010/11 Onwards
For 2010/11 onwards the basic personal allowance will be reduced for those with adjusted net incomes over £100,000, and an additional higher rate of income tax of 50% will apply to taxable income above £150,000. The personal allowance will be reduced by £1 for every £2 by which adjusted net income exceeds £100,000. This measure replaces the changes announced in the November 2008 Pre-Budget Report.
Dividends that would otherwise be taxable at the new 50% rate will be taxable at a new dividend additional rate of 42.5%. The trust rate will be increased from 40% to 50% and the dividend trust rate will be increased from 32.5% to 42.5%.
This measure includes powers to vary the income tax rates applying to registered pension schemes to take account of the new additional higher rate.
Tax Relief for Pension Contributions
It has been announced that, for 2011/12 onwards, for individuals with taxable income of £150,000 or more, tax relief on pension contributions will be restricted to the basic rate of tax only.
There will be legislation to deter individuals from forestalling this change by increasing their pension savings in excess of their normal regular pattern prior to that restriction taking effect. Anyone with taxable income of less than £150,000 for 2011/12, and for each of the preceding two tax years, will not be affected by any of these changes.
Non-residents and Personal Reliefs
For 2010/11 onwards, the entitlement to UK personal allowances and reliefs will be withdrawn for non-residents who would otherwise qualify for them solely by virtue of their being Commonwealth citizens. Many of those affected will still be able to obtain these allowances and reliefs by virtue of double tax treaties.
Employer-provided Living Accommodation
Employees who are provided with living accommodation by their employer on short-term leases where a lease premium is paid upfront with a low rent have avoided tax. From 22 April 2009 leases entered into or extended that are for a duration of 10 years or less will have the lease premium spread over the duration of the lease and taxed along with the rent paid less any amount made good by the employee. These rules do not apply to leases relating to a property used mainly for business purposes and partly for the domestic use of the employee.
Changes to Company Car Tax from 2011/12
- the lower threshold emissions figure will be 125g/km;
- the £80,000 list price cap will be abolished;
- the appropriate percentage for electrically-propelled cars will be 9% (a simplification as this is effectively the current position, albeit achieved indirectly);
- the reductions for: electric/petrol hybrids; cars propelled by bi-fuels, road fuel gas or bioethanol; and Euro IV standard diesel cars registered before 1 January 2006 will all be abolished – thus changing the focus to concentrate solely on the emissions figure.
Financial Services Compensation Scheme (FSCS): Accrued Interest
New measures will ensure that amounts representing accrued interest, paid by the FSCS as part of compensation payments to customers of defaulting financial institutions, will be within the charge to income tax.
The legislation will ensure that customers are in the same position as if the accrued interest had been paid by the defaulting financial institution itself.
The measures will apply to payments made by the FSCS after 5 October 2008.
Finance Act 2008 made very significant changes from 6 April 2008 to the remittance basis of taxation which enables UK resident individuals who are either non-UK domiciled or not ordinarily resident in the UK to be taxed only on income and gains remitted to the UK. Some further (more minor) changes are to be made to the remittance basis regime. They can be briefly summarised as follows and, except where otherwise stated, apply with backdated effect from 6 April 2008.
- The obligation to file a UK tax return will be removed from certain employees with overseas employment income of less than £10,000 and overseas bank interest of less than £100 all of which is subject to foreign tax.
- The range of exempt property (i.e. property that can be remitted without a tax charge) is extended to include property purchased out of overseas employment income and chargeable gains.
- No claim is required to use the remittance basis if the individual’s unremitted foreign income and gains amount to less than £2,000 in the tax year. The rules will be amended to make it clear that such an individual will be treated as having used the remittance basis unless he notifies HMRC that he wishes to be taxed other than on the remittance basis. Also, the situations where an individual need not claim will be extended to cover cases where he has total UK income or gains of no more than £100 which have been taxed in the UK and makes no remittances to the UK in that tax year.
- Certain transitional rules will be amended so that they operate as intended.
- From 22 April 2009, legislation will be introduced to clarify the interaction between the remittance basis regime and the tax rules which apply to settlements in which the settlor has an interest.
- Where an individual pays the £30,000 charge for using the remittance basis, this will count as tax paid for the purposes of Gift Aid relief.
- Certain additional anti-avoidance rules are to be introduced from 22 April 2009.
The Government will give statutory effect to Statement of Practice 1/09 in Finance Act 2010. (This Statement sets out how HMRC treat transfers made from an offshore account which contains only the income relating to a single employment contract, and how earnings should be apportioned between UK and non-UK employment where an employee is taxed on the remittance basis.)