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Budget 2010

Budget 2010

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Budget 2010

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  1. Budget 2010 Emergency 22 June 2010 This presentation is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this presentation. This presentation represents our understanding of law and HM Revenue & Customs practice as at 22 June 2010.

  2. The emergency Budget • The ‘inevitable Budget’ • We are all in this together • Fair but tough • Balance of spending cuts to tax increases 77:23 • Cumulative departmental spending cuts of the non-ring fenced departments will average 25% by 2014/15

  3. Earlier changes

  4. Earlier changes - income tax • 50% tax rate on incomes over £150,000 2010/11 • Loss of personal allowance over £100,000 = 60% tax rate 2010/11 • Limitation of higher rate tax relief on pensions • 2010/11 – anti-forestalling • 2011/12 – full restrictions now abandoned

  5. Earlier Changes - other taxes • Capital gains tax • Tax rate at 18% • Entrepreneur’s relief doubled to £2m • Annual allowance £10,100 • IHT NRB frozen at £325,000 to 2015 • Stamp duty up to 5% for residential property over £1m from 6 April 2011

  6. Earlier changes - NICs From 2011/12 • Increase NICs on band earnings • Employers from 12.8% to 13.8% • Employee from 11% to 12% • Self employed class 4 main rate 8% to 9% • Additional rate for employees and self-employed from 1% to 2%

  7. Value Added tax

  8. Value Added Tax • Standard rate of VAT • Increases to 20% from 4 January 2011 • Raises extra £12.1bn in 2011/12 • Increase adds 1.5% to annual inflation throughout 2011 • Reduced rate of VAT • Unchanged at 5% • Applies to domestic fuel etc

  9. Capital gains tax

  10. Capital gains tax • CGT rates from 23 June 2010 • Gains taxed as top slice of income (again) • Gains within basic rate band taxed at 18% • Gains above basic rate band taxed at 28% • 28% rate applies for trusts • Annual exemption • Remains at £10,100 • Taxpayer can choose which gains to offset • Normal indexation of exemption from 2011/12 • Personal allowance for income tax is a deduction • Entrepreneurs’ relief

  11. Capital gains tax: asset sale £50,000 Non-business gain • Higher rate tax payer • Full annual exemption available

  12. CGT transitional rules 2010/11 • Gains realised on or before 22 June 2010 are taxed at 18% • Gains from midnight on 22 June added to top slice of taxable income for the tax year and taxed at 18% or 28% depending on whether • Below the BR tax limit of £37,400 or • Above the BR tax limit of £37,400 • Pre Budget gains are NOT added to income • Taxpayers can choose how to allocate • Their losses • Their £10,100 annual exemption

  13. CGT – the new system Gain 28% Ex. 28% BR limit 18% Gain 0% Ex. Ex. Inc. Inc. Inc.

  14. Entrepreneurs’ relief • 10% rate applies to eligible gains • Previously 4/9 of taxable gain taxed at 18% =10% tax rate • £5m lifetime limit for disposals after 22 June 2010 • £2m life time limit applies to 2010/11 disposals up to 22 June 2010

  15. CGT planning

  16. CGT planning • Use annual for both spouses/partners • Use lower tax payer’s basic rate band for capital gains – up to £37,400 • Create years of low income for large disposals • 28% is still preferable to 40% or 50% • 18% CGT not very different from 20% income tax • ISAs become relatively more valuable • EIS deferral may be more worthwhile • Transitional planning in 2010/11 – set against post Budget gains • The annual exemption • Losses

  17. Bonds v collectives • Key issue is the underlying assets – whether income or capital growth • Non-CGT payers may be better off in collectives for growth • Annual exemption of £10,100 • Death • Freedom from CGT in collectives • Otherwise the position in more complex • Bonds provide tax shelters while taxes are high

  18. Warning • Tax rates, rules, reliefs and exemptions all change • CGT • 30% flat rate • Taxed as income • Indexation • Taper relief • 18% flat rate • 10%, 18% and 28% taxed as income

  19. Income tax

  20. Income tax • Personal allowance rises by £1,000 to £7,475 in 2011/12 • Basic rate limit will be reduced so that higher rate tax payers do not benefit. • Ultimate goal is £10,000 personal allowance • No revisions to tax rates • 50% remains • Basic rate limit frozen in 2012/13 and 2013/14

  21. Personal tax allowances

  22. Personal tax - investment ISAs • 2010/11 maximum investment £10,200 • 2010/11 cash element £5,100 • Inflationary increases from 2011/12 confirmed, based on previous September’s RPI. • Rounded to convenient £120 multiple VCT • 70% minimum for eligible shares, instead of current 30% • Will not affect VCT money raised before implementation • No start date yet set.

  23. National insurance

  24. National Insurance Contributions Rates • 2010/11: No changes • 2011/12: 1% increase in all main rates Limits • Secondary threshold (employer’s) rises by £21 pw above inflation in 2011/12 – reduces the impact of the NIC rise • Primary threshold (employee’s) rises to match personal allowance in 2011/12 – £5,715 up to £7,475

  25. National Insurance Contributions New business employment incentive • Three year scheme starting by September 2010 • For most of UK outside the ‘Greater South East’ of England • Applies to businesses set up from 22 June 2010 • 12 month employer class 1 NIC holiday for first 10 new employees recruited in first year • Maximum £5,000 per employee • Further announcement imminent

  26. pensions

  27. Pensions High income excess relief charge • Introduced in Finance Act 2010 and to be scrapped before April 2011 start date Annual allowance may be cut to £30,000 - £45,000 from 2011/12 • Replacement for high income excess relief charge • A simpler solution along the lines the industry proposed

  28. Compulsory annuitisation ends • Consultations on end to compulsory annuitisation by 2011/12, interim measures for 2010/11 • Income withdrawals can continue past 75 from 22 June • Temporary extension to age 77 for those reaching 75 on 22 June 2010 • Extension of pre-75 IHT treatment to members aged 75 and over – but they must not be 75 before 22 June • The existing ASP limits on maximum and minimum withdrawals apply from age 77 - rather than age 75 • If the individual has NOT bought and annuity • And NOT reached age 75 before 22 June • Age 75+ lump sum death benefits 35% tax & no IHT

  29. Pension planning • Pensions may be beneficial for high income clients with limited contributions, - but watch out for DB schemes • Maximise contributions in 2010/11 • Below £130,000 income make very large employer contributions • £130,000 and above use the anti-forestalling rules for £20,000 to £30,000 contributions or regular inputs • Watch out for pension input periodseg pension input period starting 1 August, • Contribution pre-August 2010 subject to 2010/11 rules • Contribution in or after August 2010 subject to 2011/12 rules unless elect to change input period

  30. Business tax

  31. Corporation tax • Main rate from April 2011: 27% 1% cuts thereafter to 24% from April 2014 • Small profits rate from April 2011: 20% • Effective marginal rate from April 2011: 28.75% • Thresholds remain at 1994 levels: • £100,000 - £300,000 • £300,000 - £1.5m • Over £1.5m

  32. Corporation tax rates: past and future

  33. Capital and other allowances Reduction in capital allowances to help pay for the corporation tax cuts: • Annual investment allowance cut to £25,000 – from £100,000 • Main P & M rate of WDA cut to 18% – from 20% • R&D reliefs: no changes to rates • Changes from April 2012 • Encourages accelerating investment before April 2012

  34. Miscellaneous • CPI to replace RPI • For indexation of benefits, tax credits and public sector pensions from April 2011 • Government will review use of CPI for taxes and duties • Furnished holiday lets • Plans to repeal have now been scrapped, BUT • Review of regime to be undertaken: • Days available/let likely to increase • Treatment of losses to be tightened

  35. consultations

  36. Consultations • The PAYE system • Intellectual property • Research and development expenditure • Non-doms • SDLT • Managed service companies and IR35 • Various investment and asset management issues • Gift aid Plus – proposals for ‘Office of Tax Simplification’

  37. Emergency Budget 2010 22 June 2010 This presentation is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this presentation. This presentation represents our understanding of law and HM Revenue & Customs practice as at 22 June 2010.