Summary of Changes Affecting Private Individuals
They promised we wouldn’t like it and they were right. Other than freezing Council Tax, there was precious little to cheer in the Budget other than the hope that it may have the desired effect of reducing the yawning deficit in the public finances: time will tell regarding that.
However, there were some plums to be picked among the thorns. In particular, the tax regime affecting carers has been improved significantly. Also, the changes to National Insurance Contributions and the increase in the tax-free personal allowance will benefit the lower-paid. Adjustments will be made once the Retail Prices Index (RPI) for September is known in order to adjust the tax thresholds to prevent the change from benefiting higher-rate taxpayers.
Income Tax
Tax Thresholds
Although the increase by a further £1,000 from April 2011 in the tax-free allowance for Income Tax (IT) purposes will attract the headlines, the higher-rate limits are being frozen until at least 2014.
Furnished Holiday Lettings
The Government is cancelling the proposed changes relating to the taxation of those operating furnished holiday lettings businesses, but measures governing the ‘actual days let’ rules are being tightened up.
Investments
From 6 April 2011, the ISA limits will be increased in line with the RPI on an annual basis. One nice touch by the Chancellor is that the increases are to be rounded to the nearest £120, so that individuals who save monthly will be able to calculate their monthly savings more easily.
There are detailed changes to the legislation on Venture Capital Trusts (VCTs), which have the practical effect that a wider range of investments can now attract VCT status, and other changes, one of which is that Enterprise Investment Scheme and VCT companies no longer have to trade in the UK but need only have a ‘permanent establishment’ here.
Pensions
The Government is deferring by two years (to age 77) the age by which a pension must be vested by the pension holder. This applies now, but only to those who have not reached the age of 75. The detailed changes will take effect in 2011, so there will be a limited window of opportunity to take any necessary action.
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Capital Gains Tax
The changes to the Capital Gains Tax (CGT) regime below all have immediate effect from midnight on 22 June.
Legislation will be included in the Finance Bill 2010 to introduce a new top rate of CGT of 28 per cent, which will apply to disposals after Budget day. For individuals, the rate of CGT remains at 18 per cent where total taxable gains and income are less than the upper limit of the IT basic-rate band. The 28 per cent rate applies to gains (or any parts of gains) above that limit. The annual exempt amount remains unchanged.
The biggest change is the increase in the lifetime limit for Entrepreneurs’ Relief to £5 million (up from £2 million) for qualifying capital gains. These will continue to qualify for a reduced rate of CGT of 10 per cent.
The CGT regime is being amended so that ‘deferred gains’ where prior gains have been rolled over into new assets will be taxed at the new rates of CGT when the gain is realised, not the rate of CGT applicable when the gain was deferred.
General
Guardians and Carers
People who care for one or more children placed with them under either a special guardianship order (i.e. special guardians) or a residence order, where that individual is not the children’s parent or step-parent, will not pay tax on the sums they receive under the order from 6 April 2010.
The regulations applicable to ‘shared-life carers’ have also been simplified, based on a scale of tax-free allowances which increase with the number of persons cared for. This will affect foster families and other shared-life carers.
Special guardians and kinship carers providing care for a child who has not been placed with them under a residence order will not be considered qualifying carers for the purposes of this IT relief. However, they will be entitled to claim the new IT exemption for payments to qualifying guardians.
The CGT exemption applicable to private residences is being preserved where an adult placement carer uses part of their home exclusively for the purposes of their business as a carer.
Asbestos Compensation Trusts
Asbestos compensation trusts established before the budget are to be exempted from the Inheritance Tax ‘periodic charge’ and CGT on disposals of certain assets. The practical effect of this will be to benefit those who receive income from such trusts, established by employers to compensate those who have suffered ill-health because of exposure to asbestos.
If any of the items in this bulletin apply to you and you would like advice, please get in touch. The end of the tax year is 5 April for individuals and 31 March for companies.
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The information contained in this bulletin is intended for general guidance only. It provides useful information in a concise form and is not a substitute for obtaining professional advice.