Monday, 30 May 2011

Budget 2011

Income tax:
  1. Personal allowance (i.e annual tax-free income for individuals): The allowance for under-65s will rise by £1,000 from £6,475 to £7,475 for 2011/12. However, from 2012/13 it will rise in accordance with CPI (consumer price inflation) and not RPI (retail price index), and hence personal allowance for 2012/13 to be £8,105.
  2. The higher rate of income tax threshold kicks in at £42,475 from April 2011 (as opposed to £43,875 in 2010/11).

    (Comment: this cannot be welcome news as CPI is less generous than RPI, meaning less tax-free income allowances and more people drawn into the higher tax bands. In addition, the increase to £8,105 next April is counterbalanced by the freeze in the higher rate threshold in 2012 and by the decision to raise NI thresholds in line with CPI rather than the higher RPI. It is estimated that 750k more people will become higher rate taxpayers).
  3. The 50% income tax rate: announcement made that it is a "temporary measure".
  4. Benefits in kind:
    1. Company cars: the multiplier for cars emitting over 95 grams of CO2 per km is increased by 1%.
    2. Company car fuel benefit (taxable amount for private use) goes up by £800 to £18,800 from 6 April 2011. 

National Insurance:
  1. One per cent increase in all national insurance rates from 6 April 2011. This is partly mitigated by increases to the earnings threshold (point after which NIC kicks in).
  2. NIC Class 2 contributions (payable by self-employed) to be collected on 31 January and 31 July in the future instead of monthly payments.

Business taxes:
  1. The approved mileage allowance rate (where employees use own car for the employer's business and the cost is claimed from the employer) will be increased by 5p per mile from April (i.e. the first 10,000 miles claim is at 45p with 25p thereafter.

    (Comment: although this may have an impact on the high mileage drivers of up to £500 saving, for the vast majority of drivers there is only one phrase: "Big deal!")

  2. Capital allowances:
    1. The rate of capital allowances for expenditure allocated on the main pool is reduced to 18% from 20% per annum from April 2012.
    2. The rate of capital allowances  for expenditure allocated on the special rate pools is reduced to 8% from 10% per annum.
    3. The Annual Investment Allowance is reduced from £100,000 to £25,000 from April 2012.
    4. The length of of short life asset pools is increased to 8 years from 4 from April 2011.  

  3. Furnished holiday lettings: 
    1. Availability and occupancy thresholds to qualify as FHL are revised from April 2012. Properties will need to be available for letting for 210 days (currently 140) and actually let for 105 (currently 70) in the year. 
    2. From 6 April 2011, FHL losses cannot be offset against other income; losses can only be offset against income from same FHL business.

Companies taxes:
  1. Corporation tax  for the year to 31 March 2011 is reduced for larger companies to 26% (and by 1% every year until it reaches 23% from 2014) and for smaller companies to 20% from April 2011.

    (Comment: Some good news that will certainly help small and medium sized businesses, encourage the incorporation of more businesses and send signals to investors that Britain is open for business).

    Capital gains:
    1. The lifetime limit for  Entrepreneurs Relief on capital gains from business disposals that qualifies for the 10% CGT rate (rather than the normal CGT rates of 18%/or 28%) is increased from £5 million to £10 million from 6 April 2011.
    2. Annual exempt amount will  from now on increase using CPI and not RPI. 

    Tax simplification:
    1. Chancellor announced intention to merge the operation and administration of income tax with National insurance in order to cut the employers' admin costs and also bring savings for HMRC. Chancellor insisted this is not a move to increase taxes but to simplify them by merging the two admin systems.

      (Comment: tax simplification is welcome but how are they going to deal with some obvious barriers, e.g. the NIC threshold is about £2,000 below the income tax threshold?)

    Inheritance tax:
    1. Rate of inheritance tax to be reduced if 10% of net estates are left to charity from April 2012. The IHT rate in those cases will be reduced from 40% to 36% for deaths occurring on or after 6 April 2012. 

    Consumers' taxes: 
    1. Petrol duty rate down by 1 penny per litre from 23 March 2011.

      (Very short comment: this represents one of the biggest jokes ever heard!)

    Benefits:
    1. Tax credits:
      1. If income goes up by more than £10k from the last tax year, tax credits for the current tax year will be reduced.
      2. Families with gross income above £41,300 lose their Tax Credits from 6 April 2011.
      3. Reduced CTC from April 2011 for families earning more than £40,000 per year.
      4. Baby element of child tax credit (CTC) is removed from 6 April 2011.
    2. Benefit payments from 6 April 2011 to rise in accordance with CPI instead of the higher RPI.

    Pension plans:
    1. Annual allowance for tax relief on contributions to pension funds reduces from £255,000 to £50,000 from 6 April 2011 .
    2. The lifetime allowance (the value of private pension fund on retirement that can be drawn before extra tax is due) is reduced from £1.8 million to £1.5 millions from 6 April 2012.

    Stamp duty land tax:
    1. New 5% rate for residential properties over £1 million from 6 April 2011 (at present the highest rate of SDLT is 4% and applies to purchases where the consideration is over £500k).
    2. Zero per cent "holiday" rate for residential properties valued up to £250,000 available to first time buyers to go from 25 March 2012.

    Non-UK domiciled persons
    1. UK residents who are non-UK domiciled for tax purposes, will have to pay a new £50,000 charge after living in Britain for 12 years if they use the remittance basis for taxing overseas income. Th£30,000 charge is kept for those who have been resident for 7 years but less than 12.
    2. Exemption from tax where non-domiciled individuals remit overseas income/gains which are then commercially invested in UK businesses.

    Enterprise incentives:
    1. The income tax relief rate for shares subscribed into the Enterprise Investment Scheme goes up to 30% (currently 20%) from April 2011.
    2. Also, the annual maximum amounts that can be invested into EIS and VCT investments goes up from April 2012 from £500k to £1m and it will be open to larger companies.

      (Comment: the incentives could potentially go a long way to help businesses to access finance).

    Savers:
    1. ISA's for children under 18 will be introduced from autumn 2011. No further details announced.

    Charities:
    1. Charities will be able to claim gift aid on small gifts (£10 or less) without gift aid declarations up to £5,000 donation limit from April 2013.

    IR35 update:
    1. The office of tax simplification has suggested that it should be abolished or revised. HMRC have decided that IR35 is staying for now until ...

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