You and personal changes

• Income tax rates and thresholds
• National insurance contribution rates and thresholds
• Pensions: restricting tax relief for high-income individuals (anti forestalling)
• Pensions: changes to tax rates for special charges and the special annual allowance charge
• Inheritance tax: nil rate band and tax avoidance schemes
• Changes to company car tax
• Van benefit charge: electric vans
• Cars and vans: changes to fuel benefit tax
• Capital gains tax: private residence relief and adult placement carers
• Seafarers' earnings deduction
• Furnished holiday lettings
• Shared lives carers
• A taxpayer concession
• Salary sacrifice and workplace canteens

Income tax allowances and thresholds

Changes announced to income tax allowances and tax rate band thresholds are as follows:

• For 2010/11 all tax allowances and thresholds will be the same as for 2009/10
• For 2012/13 the higher rate income threshold will be frozen at the 2011/12 amount. The personal allowance will increase and the basic rate limit will be reduced by the same amount.

 

National insurance contribution rates and thresholds

Changes to the national insurance rates and thresholds for 2010/11 and subsequent years are announced as follows:

• For 2010/11 the lower earnings limit will increase by £2 to £97 per week. The special Class 2 rate for Volunteer Development workers will increase by 10p to £4.85 per week as this is linked to the lower earnings limit. All other NIC rates and thresholds are unchanged for 2010/11
• From 2011/12 the main rate of Class 1 and Class 4 NICs will increase by 1% to 12% and 9% respectively. The Class 1 employer rate will be increased by 1% to 13.8%. The increased rate will also apply to Class 1A and Class 1B contributions. The additional rate of Class 1 and Class 4 NICs will also be increased by 1% to 2%
• For 2011/12 the primary threshold and lower profits limit will be increased by £570 above plans announced in the 2008 Pre Budget Report to compensate the lowest earners for the increase in Class 1 and Class 4 rates to help taxpayers earning £20,000 or less.

 

Pensions: restricting tax relief for high-income individuals (anti-forestalling)

The 2009 Budget announced the Government's intention to restrict tax relief on pension contributions with effect from 6 April 2011 for individuals with gross income of £150,000 or over. Anti-forestalling legislation was also announced at the same time. The parameters of this legislation have today been changed so that:

• The income definition for the £150,000 threshold will include the value of employer pension contributions
• Individuals with incomes of £130,000 or over whom, on or after 9 December 2009, change their normal pattern of regular pension contributions, or the normal way in which their pension benefits are accrued will be affected. This will only apply if the total pension contributions or benefits accrued exceed the special annual allowance of £20,000 (or in some circumstances £30,000)
• Tax relief for those individuals with incomes below £130,000, before the inclusion of employer's pension contributions will not be restricted unless the existing annual and lifetime allowances are breached
• The anti-forestalling threshold will be amended in Finance Bill 2010 to income of £130,000 or over
• The operative date for these anti-forestalling provisions will be 9 December 2009 for contributions paid under money purchase pension schemes or increases in the rights accrued under defined benefit schemes
• The Government has also published a consultation document on how the restriction of higher rate tax relief for pension contributions for high-income individuals will be implemented from 6 April 2011.

 

Pensions: changes to tax rates for special charges and the special annual allowance charge

Changes are to be introduced to the tax charge levied by administrators of registered pension schemes when they pay short service lump sum refunds. The current rate of tax is 20% on the first £10,800 of refunded contributions, and 40% thereafter. For refunds made on or after 6 April 2010, the tax rates will be 20% on the first £20,000, and 50% thereafter.

A tax charge is also currently payable where certain lump sums, gratuities or other benefits are received by somebody other than an individual from an Employer Financed Retirement Benefits Scheme. The tax charge is payable by the recipient and is currently 40% - this will increase to 50% for benefits received from 6 April 2010.

Inheritance tax: nil rate band and tax avoidance schemes

Changes announced to inheritance tax are as follows:

• The nil rate band for inheritance tax will remain at £325,000 for 2010/11. It was originally to have been increased to £350,000
• Provisions will be introduced in Finance Bill 2010 to counter two tax avoidance schemes that have been used to reduce the inheritance tax charge arising when property is settled on a trust. The legislation will be effective in cases either where a settlor transfers property into a trust, but retains a future interest in that trust, or alternatively purchases a future interest in the trust, on or after 9 December 2009.

 

Changes to company car tax

Legislation will be included in Finance Bill 2010 to introduce the level of the company car tax charge for 2012/13. The main changes will be as follows:

• The current graduated table of company car tax bands will be extended down to a new 10 per cent band
• All CO2 emissions thresholds will be moved down by 5g/km on 6 April 2012 so that the 10 per cent band will apply to company cars with CO2 emissions up to 99g/km
• Qualifying low emissions cars will no longer exist as a separate category
• The appropriate percentage for electric cars for the purposes of company car tax will be reduced from 9% to 0% for 5 years from 6 April 2010. This eliminates the car benefit charge for electric cars in this period.

 

Van benefit charge: electric vans

Legislation will be introduced in Finance Bill 2010 to set a nil flat rate benefit charge for electric vans for the purposes of the van benefit charge. The current flat rate is £3,000 for all vans that can be used for private motoring. The Class 1A charge for employers will be removed for qualifying electric vans.

The measure will have effect on or after 6 April 2010 for 5 years.

Cars and vans: changes to fuel benefit tax

The changes to fuel benefit tax from 6 April 2010 are as follows:

• The fuel benefit charge multiplier used as the basis for calculating the benefit of private fuel received for a company car which is chargeable to income tax and Class 1A NICs will increase from £16,900 to £18,000
• The figure used as the basis for calculating the benefit of private fuel received for a company van which is chargeable to income tax and Class 1A NICs will increase from £500 to £550.

 

Capital gains tax: private residence relief and adult placement carers

The Finance Bill 2010 will include measures to ensure that entitlement to private residence relief is preserved where an adult placement carer uses part of their home exclusively for their business as a carer.

The fact that part of the home is being used for a business will not prevent the private residence exemption being available for that part of the property.

Seafarers' earnings deduction

With effect from 6 April 2011 the seafarer (generally, a person who works on a ship) 100 per cent UK tax relief deduction for earnings from carrying out duties as a seafarer wholly or partly outside the UK is claimable by EU or European Economic Area residents. Currently one of the qualifying conditions for the Seafarers' Earnings Deduction is that the claimant must be ordinarily resident in the UK; the relief is extended in order to comply with the EU Treaty.

Furnished holiday lettings

With effect from April 2010 (unincorporated owners from 6 April, corporate owners from 1 April) the favourable tax treatment of furnished holiday lettings (FHL) will be aligned with those for other property businesses. This change affects individuals, partnerships, trustees and companies who have income or capital gains from the commercial letting of furnished holiday accommodation. The changes do not affect hoteliers and bed and breakfast owners.

The FHL rules provide for flexible loss relief, additional capital allowances, certain capital gains reliefs and relevant UK earnings for pension purposes. Thus those who let furnished holiday accommodation will no longer be treated as if they were trading for certain tax purposes. Instead they will be taxed for all tax purposes under the normal rules for property businesses.

In addition to the press releases issued with the Pre Budget Report, HM Revenue and Customs also issued a number of detailed guidance notes. If you currently have income from furnished holiday lettings, do please contact us to discuss the implications of these changes.

Shared lives carers

A new relief is to be introduced in 2010/11 for qualifying Shared Lives carers that will largely mirror the existing Foster Care relief.

Shared Lives carers include adult placement carers, Staying Put carers and those receiving a Scottish Kinship Care Allowance.

The relief will consist of a tax-free allowance and replaces the current simplified income tax arrangements that HM Revenue and Customs apply for some Shared Lives carers.

The tax free allowance will be available per household, and consists of:

• £10,000 fixed amount per year;
• £200 per week (or part week), per placement aged under 11; and
• £250 per week (or part week), per placement aged 11 or over.

 

The arrangement and detail of the allowance and the applying conditions will be finalised after discussions between HM Revenue and Customs and representative bodies and other stakeholders before legislation is drafted and included in the Finance Bill 2010.

A taxpayer concession

Where income or corporation tax returns are not filed on time HM Revenue and Customs is able to issue an estimate of the tax due (a determination). This estimate can only be replaced by the tax return being filed within five years (reducing to three years from April 2010) from the statutory filing date or 12 months from the date of the issue of the determination. Currently HM Revenue and Customs by concession collect only the sum that would have been due for the period had the taxpayer filed the return on time. Legislation will be introduced to permit HM Revenue and Customs to continue to apply this treatment provided certain conditions are met.

Salary sacrifice and workplace canteens

A raft of rule changes to section 317 of income tax legislation are to come into effect on and after 6 April 2011 designed to restrict the tax exemption for workplace canteens.

These restrictions apply where employers and employees have developed remuneration arrangements involving salary sacrifice or flexible benefits to take advantage of the tax exemption. The effect of these arrangements has been to allow some employees to purchase meals out of gross pay, and thus reduce the liability to tax and national insurance.