Budget 2010

This presentation is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining

from taking any action on the basis of the contents of this presentation. This presentation represents our understanding of law and HM Revenue & Customs practice as

at 22 June 2010.

22 June 2010

Emergency

The emergency Budget

• The ‘inevitable Budget’

• We are all in this together

• Fair but tough

• Balance of spending cuts to tax increases 77:23

• Cumulative departmental spending cuts of the non-ring fenced departments will average 25% by 2014/15

EARLIER CHANGES

• 50% tax rate on incomes over £150,000 2010/11

• Loss of personal allowance over £100,000 = 60% tax rate 2010/11

• Limitation of higher rate tax relief on pensions

2010/11 – anti-forestalling 2011/12 – full restrictions

now abandoned

Earlier changes - income tax

• Capital gains tax Tax rate at 18%

Entrepreneur’s relief doubled to £2m

Annual allowance £10,100

• IHT NRB frozen at £325,000 to 2015

• Stamp duty up to 5% for residential property over £1m from 6 April 2011

Earlier Changes - other taxes

From 2011/12

• Increase NICs on band earnings Employers from 12.8% to 13.8%

Employee from 11% to 12%

• Self employed class 4 main rate 8% to 9%

• Additional rate for employees and self-employed from 1% to 2%

Earlier changes - NICs

VALUE ADDED TAX

Value Added Tax

• Standard rate of VAT· Increases to 20% from 4 January 2011

· Raises extra £12.1bn in 2011/12

· Increase adds 1.5% to annual inflation throughout 2011

• Reduced rate of VAT· Unchanged at 5%

· Applies to domestic fuel etc

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CAPITAL GAINS TAX

Capital gains tax• CGT rates from 23 June 2010

o Gains taxed as top slice of income (again)

o Gains within basic rate band taxed at 18%

o Gains above basic rate band taxed at 28%

o 28% rate applies for trusts

• Annual exemptiono Remains at £10,100

- Taxpayer can choose which gains to offseto Normal indexation of exemption from 2011/12

o Personal allowance for income tax is a deduction

o Entrepreneurs’ relief

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Capital gains tax: asset sale£50,000 Non-business gain

· Higher rate tax payer

· Full annual exemption available

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Pre-Budget£

Post-Budget£

Gain 50,000 50,000

Annual exemption (10,100) (10,100)

Taxable 39,900 39,900

Tax @18% = £7,182 @28% = £11,172

CGT transitional rules 2010/11

• Gains realised on or before 22 June 2010 are taxed at 18%

• Gains from midnight on 22 June added to top slice of taxable income for the tax year and taxed at 18% or 28% depending on whether

Below the BR tax limit of £37,400 or

Above the BR tax limit of £37,400

• Pre Budget gains are NOT added to income

• Taxpayers can choose how to allocate Their losses

Their £10,100 annual exemption

CGT – the new system

BR limit

Inc. Inc. Inc.

Ex. Ex.

Ex.

Gain

Gain

0% 18%

28%

28%

Entrepreneurs’ relief

• 10% rate applies to eligible gains• Previously 4/9 of taxable gain taxed at

18% =10% tax rate• £5m lifetime limit for disposals after

22 June 2010 • £2m life time limit applies to 2010/11

disposals up to 22 June 2010

CGT PLANNING

CGT planning

• Use annual for both spouses/partners

• Use lower tax payer’s basic rate band for capital gains – up to £37,400

• Create years of low income for large disposals

• 28% is still preferable to 40% or 50%

• 18% CGT not very different from 20% income tax

• ISAs become relatively more valuable

• EIS deferral may be more worthwhile

• Transitional planning in 2010/11 – set against post Budget gains

The annual exemption

Losses

Bonds v collectives

• Key issue is the underlying assets – whether income or capital growth

• Non-CGT payers may be better off in collectives for growth

Annual exemption of £10,100

Death

Freedom from CGT in collectives

• Otherwise the position in more complex

• Bonds provide tax shelters while taxes are high

Warning

• Tax rates, rules, reliefs and exemptions all change

• CGT 30% flat rate

Taxed as income- Indexation- Taper relief

18% flat rate

10%, 18% and 28% taxed as income

INCOME TAX

Income tax

• Personal allowance rises by £1,000 to £7,475 in 2011/12o Basic rate limit will be reduced so that higher rate tax

payers do not benefit.

o Ultimate goal is £10,000 personal allowance

• No revisions to tax rateso 50% remains

• Basic rate limit frozen in 2012/13 and 2013/14

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Personal tax allowances

£0£1,000£2,000£3,000£4,000£5,000£6,000£7,000£8,000£9,000

£10,000£11,000£12,000

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

Actual Projected

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Personal tax - investment

ISAs· 2010/11 maximum investment £10,200

· 2010/11 cash element £5,100

· Inflationary increases from 2011/12 confirmed, based on previous September’s RPI.

· Rounded to convenient £120 multiple

VCT· 70% minimum for eligible shares, instead of current 30%

· Will not affect VCT money raised before implementation

· No start date yet set.

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NATIONAL INSURANCE

National Insurance Contributions

Rates

• 2010/11: No changes

• 2011/12: 1% increase in all main rates

Limits

• Secondary threshold (employer’s) rises by £21 pw above inflation in 2011/12 – reduces the impact of the NIC rise

• Primary threshold (employee’s) rises to match personal allowance in 2011/12 – £5,715 up to £7,475

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National Insurance Contributions

New business employment incentive

• Three year scheme starting by September 2010

• For most of UK outside the ‘Greater South East’ of England

• Applies to businesses set up from 22 June 2010

• 12 month employer class 1 NIC holiday for first 10 new employees recruited in first year

• Maximum £5,000 per employee

• Further announcement imminent

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PENSIONS

Pensions

High income excess relief charge· Introduced in Finance Act 2010 and to be scrapped before

April 2011 start date

Annual allowance may be cut to £30,000 - £45,000 from 2011/12

· Replacement for high income excess relief charge

· A simpler solution along the lines the industry proposed

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Compulsory annuitisation ends

· Consultations on end to compulsory annuitisation by 2011/12, interim measures for 2010/11

· Income withdrawals can continue past 75 from 22 June

· Temporary extension to age 77 for those reaching 75 on 22 June 2010

· Extension of pre-75 IHT treatment to members aged 75 and over – but they must not be 75 before 22 June

· The existing ASP limits on maximum and minimum withdrawals apply from age 77 - rather than age 75

· If the individual has NOT bought and annuity

· And NOT reached age 75 before 22 June

· Age 75+ lump sum death benefits 35% tax & no IHT

Pension planning

• Pensions may be beneficial for high income clients with limited contributions, - but watch out for DB schemes

• Maximise contributions in 2010/11 Below £130,000 income make very large employer

contributions

£130,000 and above use the anti-forestalling rules for £20,000 to £30,000 contributions or regular inputs

Watch out for pension input periodseg pension input period starting 1 August,- Contribution pre-August 2010 subject to 2010/11 rules- Contribution in or after August 2010 subject to 2011/12

rules unless elect to change input period

BUSINESS TAX

Corporation tax

• Main rate from April 2011: 27%

1% cuts thereafter to 24% from April 2014

• Small profits rate from April 2011: 20%

• Effective marginal rate from April 2011: 28.75%

• Thresholds remain at 1994 levels:o £100,000 - £300,000

o £300,000 - £1.5m

o Over £1.5m

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Corporation tax rates: past and future

35

0

5

10

15

20

25

30

35

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

%

Year

Small Profits Rate Main Rate

Capital and other allowances

Reduction in capital allowances to help pay for the corporation tax cuts:

• Annual investment allowance cut to £25,000 – from £100,000

• Main P & M rate of WDA cut to 18% – from 20%

• R&D reliefs: no changes to rates

• Changes from April 2012

• Encourages accelerating investment before April 2012

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Miscellaneous

• CPI to replace RPI o For indexation of benefits, tax credits and public sector

pensions from April 2011

o Government will review use of CPI for taxes and duties

• Furnished holiday letso Plans to repeal have now been scrapped, BUT

o Review of regime to be undertaken:- Days available/let likely to increase- Treatment of losses to be tightened

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CONSULTATIONS

Consultations

• The PAYE system

• Intellectual property

• Research and development expenditure

• Non-doms

• SDLT

• Managed service companies and IR35

• Various investment and asset management issues

• Gift aid

Plus – proposals for ‘Office of Tax Simplification’

Emergency Budget 2010

This presentation is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining

from taking any action on the basis of the contents of this presentation. This presentation represents our understanding of law and HM Revenue & Customs practice as

at 22 June 2010.

22 June 2010