Private Client Newsletter July 2010
Emergency Budget Report
With much speculation before the Budget about significant tax arises in a number of different areas, it almost seems that a sigh of relief is appropriate. However, there is no escaping that the UK economy is in a parlous state and the relatively light tax burden added to an already heavy load may conceal some nasty news later in the year.
Clients with business interests are more likely to be affected by the Budget and some of the announcements will be seen as encouraging. Entrepreneurs’ relief has been raised from £2 million to £5 million and there are changes to its application. Despite rumours that the annual exemption for capital gains tax (CGT) might change for 2010/11, it remains at the level set previously (£10,100). However a new rate of CGT is to be introduced applicable from 23 June 2010. The rate rises to 28% for higher rate and top rate income tax payers (basic rate tax payers rate to remain at 18%) with no tapering based on length of ownership. However the accompanying notes to the Budget ominously state that the Chancellor will decide the rates for CGT for 2011/12 in the Budget in 2011 leaving the door open for possible further tax rises.
For those aged under 65 the personal allowance will be increased by £1,000, from £6,475 to £7,475 for 2011/12. By increasing the personal allowance the Government states that 880,000 will be taken out of tax altogether. However there was no mention of a transferable personal allowance for married couples/civil partners and for 2010/11 onwards those with adjusted net income over £100,000 will have their personal allowance withdrawn by £1 for every £2 of adjusted net income above the income limit. Adjusted net income for these purposes is broadly all income after adjustment for pension payments, charitable giving and relief for losses. However the main rates for income tax remain unchanged. In particular the new 50% (42.5% for dividends) remains for those with taxable income above £150,000. The existing basic rate limit is £37,400 and the exact figure of the basic rate limit for the next tax year 2011/12 will be confirmed in the Autumn.
The trust rate for income tax, which mainly applies to discretionary trusts, was increased from 40% to 50% and the trust dividend rate from 32.5% to 42.5% in the previous Budget and these changes remain.
The inheritance tax threshold of £325,000 is to be frozen up to and including 2014/15. This clearly represents a tax increase and will bring more and more people into inheritance tax, especially if there is significant inflation over the next five years. However the rate of inheritance remains at 20% for lifetime transfers and 40% for death estates (including transfers within 7 years before death brought back into the estate for the purpose of calculating the tax due at death).
Heralding a new era of responsibility, freedom and fairness, George Osborne delivered on his promise to focus on spending cuts rather than tax increases with the only significant tax raising measures being the widely anticipated increases in CGT and VAT (from 17.5% to 20%) and the introduction of a new levy on banks. Tax increases aside, one of the most significant announcements was a consultation on future tax policy changes, seeking to make them more considered and transparent. The impact of this in creating an environment of stability and certainty may be the most significant legacy of this Budget.
If you would like advice and guidance on how the emergency budget affects you, please contact Amanda Epstein.
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