Clarke and Son News

The following are predicitions of how the Emergency Budget on 22nd June 2010 could affect you and your business:

Rise in tax-free allowance - the Government has indicated that they intend to raise the personal tax-free allowance which currently stands at £6,475 to £10,000 over the lifetime of this Parliament. It is likely that in the first instance the allowance will rise between £700 - £1,000.

National Insurance Rise - A 1% rise in National Insurance Contributions is likely to kick in next April.

VAT Rise - There is speculation of an increase in VAT.

Corporation Tax - it has been announced that the headline rate of corporation tax will be reduced however there has, at present, been no indication as to the rate it may be reduced to.

Pensions - The Coalition Government has agreed to restore the link between the basic state pension and earnings. There is a likelihood that further pension reliefs will be taken away from high income earners, perhaps lowering the proposed threshold for tapering of higher rate relief which is set at £150,000 of income. The Government could go further and implement other reforms such as increasing the state retirement age for men and women.

Inheritance Tax (IHT) - there is unlikely to be any change to the current IHT threshold of £325,000.  However, there may be changes to some restrictions to IHT including the rules for non-domiciled individuals.

Capital Gains Tax (CGT) increase - the actual rate is yet to be determined but it is thought that there will be an increase in order to bring CGT in line with income tax, indicating it could go up (from 18%) to approximately 40%, leading to owners of second homes, share portfolios and other investments facing substantially higher CGT bills. It is predicted that this increase will begin at the start of April 2011. The increase is to be on non-business activities only, however there has been some discussion as to what is classed as ‘business’ and ‘non-business’.  The Emergency Budget may also introduce changes to Private Residence Relief which enables people to sell their only or main residence free of CGT.

For more information on any of these issues, please email Nia Wharry or Tel: 01256 320 555.

The EU has introduced a new Regulation - the ‘Brussels IV Regulation’ to help deal with cross-border issues relating to applicable laws in transnational inheritance cases.

The EU claims that the Regulation will create a ‘European Certificate of Inheritance’. The certificate aims to simplify succession procedures throughout EU Member Countries and will look to the person’s last habitual residency to determine which succession laws are to be applied. The new Regulation will also bring about a degree of freeom, allowing testators to choose the law which should be applied to dispose of their assets.

The Regulation is expected to be approved in 2011/2012 and is likely to affect those individuals who have property abroad, or have a contract of employment which involved working abroad on short term secondments. However, at present the UK has opted out of the Regulation and its application.

If you would like further information about cross-border estates or have assets overseas and require advice, please contact Nia Wharry on Tel: 01256 320 555.

The Government will deliver the Emergency Budget on 22 June 2010 within which they are expected to increase the rate of Capital Gains Tax from 18% to 40% in relation to the disposal of ‘non-business’ assets, keeping it in line with income tax rates.

If you are an owner of a second home, buy to let property or share portfolio, to name but a few, then you may be hit the hardest by these changes.

Therefore, if you are considering selling or disposing of any property you may well wish to proceed imminently to take advantage of the current Capital Gains Tax rate.

For advice on Capital Gains Tax, please contact Nia Wharry on Tel: 01256 320 555.

Here is a summary of how the recent budget could affect you as an individual or business:

Inheritance Tax (IHT)

• The IHT nil rate band (the amount that can be given away on death without incurring Inheritance Tax - subject to lifetime gifts)  of £325,000 has been frozen for the next four years (i.e. 6 April 2010 - 5 April 2015)
• For chargeable events above the nil rate band IHT is charged at 40% on death, 20% on lifetime transfers

For further information on Inhertance Tax, please contact Nia Wharry.

Stamp Duty Land Tax (SDLT)

• The Threshold for first time buyers is to rise to £250,000 (applies where effective date falls on or after 25 March 2010 and before 25 March 2012).
• Introduction of an additional 5% rate of SDLT for residential properties £1 million plus. This rate does not apply until 5 April 2011.

All other SDLT rates and thresholds remain unchanged. For more information on Stamp Duty for residential properties, contact Jenny Axe.

Income Tax

• Introduction of an additional rate of 50% on income in excess of £150,000
• Gradual removal of personal allowances above £100,000 at the rate of £1 of personal allowance for every £2 of income
• Rates for basic (20%) and higher (40%) are to remain the same

 Capital Gain Tax (CGT)

• The annual exempt amount for tax year 2010-11 has been set at £10,000
• Entrepreneurs’ relief - doubled from £1 million to £2 million - i.e. 10% CGT paid on the sale of a business or shares in a personal company on or after 6 April 2010

If you have any queries on Business Rates or how the budget will affect your business, contact Peter Turner.

Other Taxes

• Fuel duty increase - to be phased at 1p in April, 1p in October and the remainder in January 2011
• National Insurance contributions to rise by 1% in April 2011. However, the threshold for NI payments is to rise so that nobody earning less than £20,000 will face extra charges.
• No change to VAT
• Business rates to be cut from October for one year
• Annual investment allowance for small firms - doubled to £100,000
• Duty on cider is to increase by 10% from 29 March and duty on wine, beer and spirits by 2% from 29 March

Savings - ISAs

• The annual amount individuals can contribute is to rise in line with RPI
• If there is a fall in the RPI then the amount will remain as for the previous tax year

Other Points of Interest:

Families:

• Provision of income tax relief for payments to special guardians/carers looking after children placed under a residence order.  The exemption applies to qualifying carers and qualifying payments made on or after April 2010
• Parents of one and two year old children are to recieve an increase of £4 per week in child tax credits from 2012
• Pensioners’ higher winter fuel payments to remain for another year

If you would like to discuss Parental Responsibility issues, please contact Bhupendra Sankhla.

Employment

• The length of time over 65s have to work in order to qualify for tax credits is to be reduced
• Youth employment guarantee scheme is to be extended to March 2012 (guaranteeing anyone under 24 will get a job or training once they have been unemployed for six months).

For employment issues, please contact Thomas Hunt.

Business Support

• State owned banks are to provide £105 billion of loans
• Time to pay scheme - allowing firms to agree extra timetables for settling tax bills to be extended for whole of next parliament
• New growth capital fund worth £500 million to help fast-growing SMEs

For advice on business matters, please contact Peter Turner.

The Economy & Government Finance:

• Predicton that growth for 2010 would be between 1% and 1.5%
• The prediction for 2011 is a growth rate of between 3% and 3.5%
• Government borrowing will be £167 billion this year, £163 billion in 2011, £131 billion in 2011/2012, £110 billion in 2013/14 and £74 billion in 2014/15

For more information on any of these issues, please contact Clarke & Son on Tel: 01256 320 555.

Gift Aid is a tax relief for charities and for people who choose to donate to charities. Their aim is to encourage people to donate to charities both during their life times and on their deaths.

Recently, the Government has discovered a scheme that exploits the relief available for donations of listed shares and other types of qualifying investments (including land) to charities in section 431 of the Income Tax Act 2007 and section 587B of the Income and Corporation Taxes Act 1988.

The Government is proposing to introduce legislation in the Finance Bill 2010 which will reduce the tax relief on such arrangements where the acquisition was made as part of a tax advantage scheme. The legislation will not affect genuine donations to charity where tax avoidance arrangements are not involved.

If you have any questions on Tax issues, please contact Nia Wharry on Tel: 01256 320 555.

The recent pre-budget report has highlighted the following issues that may be of interest to Tax payers:

National  Insurance - All rates of National Insurance will increase by 0.5% from April 2011, in addition to the 0.5% rise announced in the 2008 Pre-Budget Report.  The threshold at which National Insurance becomes payable will be increased by £570.

 Income Tax - Personal allowances and the higher rate threshold for 2010/11 will be frozen at 2009/10 levels. A 50% tax rate will apply to income over £150,000 from 2010/11.  The higher rate of income tax threshold will be frozen in 2012/13 at the 2011/12 level.

Restriction of Pension Tax Relief - The rules introduced in Budget 2009 have been tightened so that any pension benefit provided by an employer or third party will be taken into account in calculating whether a person’s income exceeds the £150,000 threshold.  Also, the anti-forestalling measures have been extended to restrict irregular pension contributions over £20,000 (or £30,000 in some circumstances) for those whose income is £130,000 or over from December 2009.

Inheritance Tax - The Inheritance Tax allowance will be frozen at £325,000 in the 2010/11 tax year. Legislation closing two Inheritance Tax avoidance schemes involving the transfer of property to a trust in which the transferor retains a future interest, and also where a person purchases an interest in a trust will in all likelihood be introduced.

If you are interested in Estate Planning Issues, please contact Nia Wharry on Tel: 01256 320 555.

HM Revenue & Customs has announced that as from 29th September 2009, all unpaid inheritance tax will incur 3% interest.

For more information on Inheritance Tax issues, contact Nia Wharry on Tel: 01256 320 555.

Two elderly sisters who have lived together since birth are taking the Government to the European Court of Human Rights. Joyce Burden, 88 & Sybil 80, who live in Marlborough are set to face a large Inheritance Tax bill when one of them passes away which will result in the other being force to sell their family home.

The 2004 Civil Partners Act made it possible for same sex couples to benefit from Inheritance Tax laws whilst co-habiting couples are unable to make any such Inheritance Tax claims.  The sisters are fighting to have cohabiting couples recognised in the same light as both those who are married and those who enter civil partnerships. 

The threshold at which tax is paid is set at £285,000 with a 40% rate set thereafter, meaning that the sisters are set to loose a lot from their family home and grounds which is estimated to be worth £875, 000.  Having written to the Chancellor before the budget every year since 1976 they were surprised when in 2005 they wrote to the European Courts with no legal advice and had their case accepted. Their legal bill is expected to top £20,000.

After making the announcement in this year’s budget to scrap tax breaks on the home computer initiative, Gordon Brown is now said to be planning a possible u-turn on his decision.   

The home computer initiative allowed for home PC’s to be bought out of gross, as opposed to net salaries which could then be paid for in weekly instalments.  Around 500,000 PC’s were delivered to homes in Britain, amongst those that signed up to the deal were Tescos, Royal Mail and BT.

The objective of the home computer initiative was to bridge the nations ‘digital divide’ by providing individuals with access to increased job opportunities whilst offering access to public services, and thus increasing the quality of life in households that benefited from the scheme.

The move, which was voted against by our Local Conservative MP Maria Miller, was also condemned by the Home Computer Initiative Alliance.  The scheme had been criticised for being abused by the middle classes and failing to reach those on lower incomes.

If you feel strongly about this then why not sign the petition to save the Home Computer Initiative.

Income Tax Rates
The personal income tax threshold rises in line with inflation from £4,745 to £5,035, with higher-rate tax coming in at a taxable income of £33,300 – up from £32,400 in 2005/06.

Capital Gains Tax (CGT)
There were no changes to CGT rates. Investors (including trustees) who ‘bed and breakfast’ shares to use their annual allowance for CGT or to create a tax loss will find that such transactions are ineffective with immediate effect. With the FTSE index having risen substantially this year, the Chancellor is effectively increasing his future CGT yield.

Motoring
Vehicle Excise Duty (the tax disk) is being reduced for the two lowest bands of vehicles (by up to £35) and increased by £25 for the highest band, with the two middle bands unchanged. The bands are based on how much pollution a vehicle creates. The very ‘greenest’ vehicles will be exempt from tax altogether. Set against this, the increase in fuel duty (postponed from September because of the spiralling cost of fuel) is being reintroduced, adding 1.5p per litre to petrol, but again deferred until September. The benefit in kind charge for the lowest band car is also being reduced by the introduction, from 2008/09, of a new 10 per cent rate for company cars with CO? emissions of 120g/km or less.

Venture Capital Trusts (VCTs)
Although the amount which can be contributed to a VCT is doubled to £400,000 from 6 April, the tax relief is to be limited to 30 per cent. The time such shares have to be held to be CGT free is lengthened to 5 years (from 3) and the size of the ‘gross asset value’ for a company which can obtain VCT status is reduced from £8m to £7m. These changes apply to VCT shares issued after 5 April 2006.

Anti-Avoidance
As well as new measures to prevent avoidance of tax and national insurance through the use of financial instruments such as share options, the Chancellor has hit hard at the abuse of charitable donations, by restricting the benefits which charities can provide to companies which donate to them, restricting charitable tax relief where the charity uses donations for non-charitable purposes and preventing abuses whereby a donation is made and then withdrawn when tax relief has been obtained.

Pensions
Measures designed to prevent abuses which allow the use of pensions to pass on assets free of IHT are being introduced.

Trusts – Chancellor Declares War
The Chancellor has declared war on the use of tax advantaged Accumulation and Maintenance (A&M) and Interest in Possession (IIP) trusts by making them subject, with immediate effect, to an ‘entry’ tax charge of 20 per cent on lifetime transfers that exceed the Inheritance Tax threshold. By deeming them to be ‘relevant property’ trusts, the 6 per cent ‘periodic’ charge and the ‘exit’ charge when trust assets vest will also apply, except where specific conditions are met. The main exceptions will be trusts arising on death where the beneficiary receives the assets at age eighteen or trusts which are created for the benefit of a disabled person.  Existing A&M and IIP trusts which provide that the assets in trust will go to a beneficiary absolutely at 18 – or where the terms on which they are held are modified before 6 April 2008 to provide this – will continue to have the current exemptions. Where they do not, the trust assets will become relevant property from 6 April 2008 and the periodic and exit charges will apply.

Property Taxes

The threshold for Stamp Duty Land Tax (SDLT) has been increased from £120,000 to £125,000 for residential properties. The threshold for the higher rate of duty has been frozen at £250,000, a move which will be unpopular with all residential property owners.  Click here to access this useful tool which will help you to callculate your SDLT quickly

Inheritance Tax (IHT)
Recent polls indicating that a large majority of the public think that IHT is inherently unfair may account for the decision to raise the IHT threshold to £285,000 immediately, with further increases to £300,000 in 2007/08, £312,000 in 2008/09 and £325,000 in 2009/10.

The budget summarised in 50 words