Budget Report 2010

March 2010

Alistair Darling presented the budget report on 24th March 2010. Many of the tax changes that came into effect in April 2010 had already been announced. There were very few new changes that affected taxation.

Income tax

It was confirmed that from 6th April 2010 taxable income above £150,000 will be liable to a new rate of income tax of 50%
Also from 6th April 2010, the personal allowance will be restricted by £1 for every £2 of income above £100,000. Individuals with net income of £112,950 or more will have no personal allowance resulting in additional tax of £2,590.
Individuals earning over £150,000 will pay 35% income tax on net dividends received.
The personal allowance and tax bands will be frozen at 2009/10 levels.

Rates and Allowances	2010/11	2009/10

Personal Allowance	£6,475	£6,475
Basic Rate of Income Tax	20%	20%
Higher Rate of Income Tax	40%	40%
Additional Rate of Income Tax	50%	NA
Basic Rate Band	up to £37,400	up to £37,400
Higher Rate Tax Band	£37,401 to £150,000	Over £37,400
Additional Rate Band	Over £150,000

Tax Relief on Pension Contributions

It has been confirmed that from 6th April 2011 an individual whose taxable income is £130,000 (excluding the value of employer’s contribution) or more will have tax relief on their pension contributions restricted to the basic rate.
For individuals with an income (including the value of employers contribution) of £150,000 or over, but below £180,000 the tax relief on pensions will be tapered from 50% to 20%.
For individuals whose income is above £180,000 tax relief will be restricted to the basic rate.
The restriction applies to pre tax income including the value of the employer’s contributions.
There are anti-forestalling measures which came into effect from 22nd April 2009 for individuals with income over £130,000 who increase their current pension arrangements.
The lifetime Limit remains at £1.8m and the annual allowance at £255,000 for a further 5 years

National Insurance

There are no changes to the rates or limits for 2010/11.
It was confirmed that all National Insurance will increase by 1% from April 2011. The rates are as follows:-

Class 1 will increase from 11% to 12%
Class 4 will increase from 8% to 9%
The Employer’s contribution will increase from 12.8% to 13.8%
Earnings above the upper limit will increase from 1% to 2%

Capital Allowances

The annual investment allowance will be increased from 6th April 2010 from £50,000 to £100,000.
The annual investment allowance is available for expenditure on plant and machinery. This allowance excludes cars, as the rate of capital allowances on cars is now dependant on CO2 emissions.

Corporation Tax

The small company’s corporation tax rate remains at 21% and the full rate remains at 28%.

Capital Gains Tax

The capital gains tax rate will remain at 18% and the annual exemption will be frozen at £10,100.
The entrepreneur’s relief which is available on the disposal of business assets will increase from £1m to £2m from 6th April 2010.

VAT

The VAT threshold for registration will increase from £68,000 to £70,000 from 1st April 2010.
The VAT threshold for de-registration will be increased from £66,000 to £68,000.
The VAT rate was put back to 17.5% from 1st January 2010.

Stamp Duty Land Tax

First time buyers buying property up to £250,000 will not have to pay stamp duty land tax. This relief is available for two years.
Stamp duty land tax on properties over £1m will increase from 4% to 5%

Inheritance Tax

It was confirmed that the nil rate band will be frozen at its current level of £325,000 from 2010/11 to 2014/15.

Furnished Holiday Lettings

It was confirmed that the rules for furnished holiday lettings will be abolished from 6th April 2010. This will mean that the tax treatment of furnished holiday lettings will be the same for other rental properties. However these rules were dropped from the Finance Act 2010 and it is uncertain whether the abolishment will go ahead.

Investment in ISA

From 6th April 2010 the annual ISA limit will increase for everyone from £7,200 to £10,200.
From April 2011 the annual ISA limit will rise in line with the retail price index. Any year where the RPI is negative, the ISA limit will be frozen.

Jenny Stone