This summary details some of the main points of the recent Emergency Budget of 23rd June this year.

1. INCOME TAX

(i) Personal allowance reduced by £1 for every £2 of adjusted net income above
£100,000. This means:

• the allowance is fully removed at £112,950
• income between £100,000-£112,950 suffers an effective rate of 60%
• taxable income in excess of £150,000 bears tax at the additional rate of 50%

(ii) Budget proposals:

For 2011/12 the personal allowance will be increased by £1,000 to £7,475 for basic rate taxpayers aged under age 65.

2. CAPITAL GAINS TAX

Budget proposals:

• 28% rate for disposals made by higher rate and additional rate taxpayers in excess of the annual exemption after midnight 22 June 2010
• 18% rate for gains made by non, lower, and basic rate taxpayers
• Annual exemption retained at £10,100 – and usable in 2010/11 in a way that minimises tax
• Entrepreneur’s relief at a flat 10% rate, with the cumulative lifetime limit increased to £5million for disposals on or after 23 June 2010

3. PENSIONS

(i) 2010/11 will be the last year for the anti-forestalling rules and therefore protected pension input and the Special Annual Allowance (SAA)

(ii) Budget proposals:

• It is intended to repeal the “high income excess relief tax charge” that was due to limit pensions tax relief for high income individuals from 6th April 2011
• However, the Government still need the £3.5 billion tax take it would have given and will be consulting on new measures, to be effective from 2011/12, that will restrict relief
• The restriction is expected to be made by severely reducing the annual allowance from £255,000 at present to between £30,000 and £45,000

This raises a number of issues

• it could result in many more individuals paying tax on their pension savings, including many with incomes well below the current £130,000 threshold
• “Compulsory annuitisation” at age 75 is to be abolished. The Government will be consulting on the changes which will be implemented from 2011/12
• In the meantime special transitional rules will apply until the new legislation is introduced for those individuals who reach age 75 on or after 22 June 2010 with either uncrystallised benefits or benefits already in drawdown
• where such an individual has uncrystallised benefits he/she will be able to take a Pensions Commencement Lump Sum (PCLS) and then effectively provide an income under the current secured pension rules
• on death on or after age 75 any lump sum paid will be subject to a 35% tax charge rather than the 82% aggregate charge applicable under Alternatively Secured Pension (ASP)
• It should, however, be noted that until the changes are introduced in 2011/12, those members who reached age 75 prior to 22 June 2010 and who are in ASP will continue to be subject to the existing legislation (including the 82% tax charge on lump sum death benefits)

4. INHERITANCE TAX

(i) The nil rate band of £325,000 will remain frozen at this level until 5 April 2015. The increase in the nil rate band to £1m proposed by the Conservatives in opposition will not be introduced in the foreseeable future

5. NATIONAL INSURANCE

(i) 2010/11:
• Employees’ primary class 1 NIC rate is 11%
• Employers’ secondary class 1 NIC rate is 12.8%

(ii) 2011/12:
• Employees’ primary class 1 NIC rate up 1% to 12%
• Employers’ secondary class 1 NIC rate up 1% to 13.8%

(iii) Budget proposals:
• In order to offset the increase to employers’ NICs the secondary threshold (the point at which employers start to pay class 1 NICs) will increase by an additional £21 per week over inflation

6. CORPORATION TAX

(i) Budget proposals:

No changes for the current financial year but from 1 April 2011:

• the main rate of corporation tax reduces from 28% to 27%
• the small companies’ rate reduces from 21% to 20%
• the effective marginal rate will 28.75%

The main rate of corporation tax will then reduce by 1% pa until a rate of 24% is reached in 2014/15.

This Budget summary covers some (but not all) of the current and proposed provisions and as such it is by no means exhaustive.