General

Change to Personal Allowance for high earners

• In the Pre Budget Report the Government announced that with effect from 6th April 2010 individuals receiving an income of more than £100,000 per year would face a cut in their Personal Allowance. This would reduce by £1 for every £2 of income above £100,000.

• This was confirmed in the March 2010 Budget.

New ‘additional rate’ band of tax

• The 50% rate announced in the Pre-Budget Report will become effective from 6th April 2010 – this is on income above £150,000 per annum.

Inheritance Tax

• The nil rate band of Inheritance Tax will be frozen at £325,000 until 2014/2015.

Stamp Duty Allowance

• For first time buyers ONLY Stamp Duty Allowance will double from £125,000 to £250,000 (from midnight on 24th March).
• This is anticipated to be funded by a new 5% band of tax being introduced in the 2011/12 tax year on properties sold for £1,000,000 +.

Capital Gains Tax

• The current CGT rate remains unchanged. However, Entrepreneurs’ Relief for CGT will be extended from £1m to the first £2m of qualifying gains made over a lifetime. This takes effect from April 2010.

Income Tax

• No changes to the previously announced basic and higher rates.  No increases.

Annual ISA limit

• As announced earlier, for savers, from 6th April the annual ISA limit will rise from £7,200 to £10,200.  ISA limits from 2011/2012 will be indexed by RPI.

Winter Fuel Payments

• The Government will guarantee payments for another year – this will be at least £250 for pensioners (£400 for those over-80′s).

Business Rates

• Business rates will be cut for one year from October for SMEs (Small and Medium Enterprises).

Tax Credit

• Individuals over the age of 60 will now be eligible for Working Tax Credit provided they work for at least 16 hours a week.

National Insurance

• Employee, employer and self-employed rates of National Insurance contributions (NICs) will increase by 0.5% from April 2011 in addition to the 0.5% increase announced in 2008.
• However the level at which people start to pay NICs will increase in April 2011 by £570 above the level previously announced.

Pensions and Retirement Planning

Implementing the restriction of pensions tax relief (BN33)

• Legislation will be introduced in Finance Bill 2010 to recover tax relief above the basic rate on pension contributions made by or on behalf of individuals with high income. For people with annual income of between £150,000 (inclusive of employer contribution for those with incomes of £130,000 or more) and £180,000, tax relief on pension contributions (including the value of employer contributions for those in employment) will reduce 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 i.e. 20%.
• The restriction of pensions tax relief will have effect on and after 6 April 2011.

Current law and proposed revisions

• The Government announced in Budget 2009 its intention to restrict tax relief on pensions savings with effect from 6 April 2011 for high income individuals.
• These rules will affect individuals with income of £150,000 or over. For the purposes of this measure, income is calculated before deduction or relief for pension contributions and charitable donations. For those in employment it includes the value of any pension benefit funded (or eventually funded) by their employer where the individual’s income is £130,000 or more.
• A taper will apply for those on incomes between £150,000 and £180,000, gradually reducing tax relief on pension contributions until it is restricted to the basic rate. This restriction will apply to the individual’s contributions and to any pension benefit funded (or eventually funded) by their employer. The rate of tax relief on pension contributions will be determined by where individuals lie on the taper.
• To prevent bringing forward pension contributions that would otherwise have been paid after April 2011, a special annual allowance applies for the 2009/10 and 2010/11 tax years for individuals with income of £130,000 or over. Tax relief above the basic rate is recovered from pension savings above an individual’s special annual allowance by the application of the special annual allowance charge. An individual’s special annual allowance is the higher of their regular pension savings and £20,000 (or in certain circumstances where contributions have been less regular than quarterly, £30,000).

Lifetime Allowance and Annual Allowance (BN34)

• As announced in the 2008 Pre-Budget Report, the 2010/11 Lifetime Allowance of £1.8 million and  Annual Allowance of £255,000 will continue to apply, with their rates held constant for a further five tax years, i.e. up to and including the tax year 2015/16. A Treasury Order has been laid before Parliament today to put this into effect.

Pensions Act 2008: employer duties

• The Pensions Act 2008 places a duty on employers to ensure that their jobholders are active members of a pension scheme. The introduction of this ‘automatic enrolment’ duty is planned for 2012.
• The Pensions Act 2008 also obliges the employer of a jobholder to make pension contributions to qualifying pension schemes. When the contributions are paid late the employer may, at the Pensions Regulator’s discretion, be asked to pay interest to their jobholder’s pension account.
• Under section 369 of the Income Tax (Trading and Other Income) Act 2005, the jobholder would be taxed on any interest paid by employers to a jobholder’s pension account. This tax charge on the jobholder will be removed.

The next article will feature a more in depth look at pension changes over the next three tax years.