Income Tax and Personal Savings
Income tax rates
In the 2009 Budget the Chancellor announced controversial plans to introduce an additional rate of income tax.
From 6 April 2010 income in excess of £150,000 will be subject to a new 50% top rate of income tax (42.5% on dividends). There is no change to the tax rates and bands for income of up to £150,000.
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The amount of the PA remains unchanged for 2010/11 – however:
- age-related allowances are reduced by £1 for every £2 that net adjusted income exceeds £22,900, to a minimum PA of £6,475
- the married couple’s allowance 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
Individual Savings Accounts (ISAs)
From 6 April 2010 the ISA limit will be raised to £10,200, up to £5,100 of which can be saved in cash. The higher limit was available to investors aged 50 and over from 6 October 2009.
From 6 April 2011 and over the course of the next Parliament, the annual ISA limits will increase each year in line with the RPI. The new annual limits will be rounded to the nearest multiple of 120 so that individuals who save monthly will be able to calculate their monthly savings more easily.
The new limits will be calculated by reference to the RPI for the September before the start of the tax year, and HMRC will announce the new limits as soon as possible after the RPI figure is published, and at least four months in advance of the start of the new tax year in which they will apply.
In the event that the RPI is negative, the ISA limits would be unchanged.
As is the case now, following indexation, the cash ISA limit will be half the value of the stocks and shares ISA limit.
Income tax adjustments between settlors and trustees
Settlors (people who set up a trust) may receive repayments of tax on trust income if they are liable to income tax at a lower rate than the trustees. A proposed new measure, to be effective from 6 April 2010, will require settlors to pay any such repayments of tax they receive to the trustees. It is understood that these payments to trustees will be disregarded for inheritance tax purposes.
Life insurance deficiency relief
Individuals may be entitled to the relief if their tax calculation needed when a policy or contract comes to an end gives a negative result rather than a gain, but taxable gains have arisen earlier in the life of the same policy or contract.
At present, a tax reduction may be due for the year in which the policy comes to an end if the individual has income subject to the higher rate and dividend upper rate of tax. New legislation, applying to surrenders on or after 6 April 2010, will extend the relief so that a tax reduction may also be due if the individual has income subject to the additional and dividend additional rates of tax.
This measure also provides that deficiency relief triggered by the surrender of a policy on or after 6 April 2010 may be restricted. The restriction will apply if the main purpose of an individual being a party to arrangements is to secure a tax reduction greater than the income tax due on earlier chargeable events that led to the relief. This provision applies to arrangements made on or after 22 April 2009 that culminate in the surrender of the policy on or after 6 April 2010.
UK charity tax reliefs
Legislation will be introduced in Finance Bill 2010 to extend UK charitable tax reliefs to certain organisations equivalent to UK charities and Community Amateur Sports Clubs in the EU and in the European Economic Area countries of Norway and Iceland, following a judgment in the European Court of Justice in January 2009.
The remittance basis: relevant person
A measure effective from 6 April 2010 will amend the legislation to clarify that a subsidiary of a non-UK resident company which would be a close company if it was resident in the UK will be treated as a relevant person for the purposes of the remittance basis.
Increased penalties for offshore tax evasion
Legislation, to apply for tax periods commencing on or after 1 April 2011, will be introduced in Finance Bill 2010 to provide for larger penalties for taxpayers who fail to provide a full account of their income tax or capital gains tax liabilities, where the failure is linked to an offshore matter.
Where the non-compliance occurs in a jurisdiction which:
- has provision to exchange information on savings income automatically with the UK, the penalty percentages will be the same as for non-compliance arising in the UK
- has agreed to exchange information with the UK, but does not automatically share that information, the penalty percentages will be 1.5 times those applying for non-compliance arising in the UK
- has not agreed to exchange information with the UK, the penalty percentages will be doubled.
Pension savings
Anti-forestalling provisions, restricting higher and additional rate tax relief for higher-earners, will continue to operate through 2010/11.
With effect from 6 April 2011, people with annual income of £150,000 or over but below £180,000 will have their tax relief on pension contributions (including the value of employer contributions for those in employment) reduced gradually from the individual’s marginal rate to the basic rate as income increases. Where income is £180,000 or over, the measure restricts tax relief on pension contributions to the basic rate.
For the purposes of this measure, income is calculated before deduction or relief for pension contributions and charitable donations, and for those in employment, includes the value of any pension benefit funded (or eventually funded) by their employer.
