Capital Gains Tax ("CGT")
We had been warned that the rate of CGT on non-business assets would increase to that similar or close to income tax rates. So the announcement today that CGT rates will increase to 28% for higher rate taxpayers will result in a sigh of relief from many. The current rate of 18% will remain for basic rate taxpayers to the extent that their total taxable income and gains, ignoring gains realised up to and including today, fall below the threshold for higher rate tax. Any excess gains will be taxed at 28%. For trustees, the rate will be a flat 28%. These new rates will have effect from midnight tonight, leaving limited opportunity to implement any planning.
The annual exemption will remain at £10,100.
Where gains realised by individuals or trustees qualify for entrepreneurs' relief, the effective rate of CGT will remain at 10% but the lifetime limit will increase from £2m to £5m for disposals after today. Those who have already used up the previous £2m limit (or £1m limit before 6 April 2010) will be entitled to claim further relief but only on qualifying gains arising in future.
This means that entrepreneurs are the winners from today's Budget. The maximum value of entrepreneurs' relief increases from £160k to £900k. So if a company or business sale is on the horizon, it becomes even more important to take early advice to ensure that the relief is available. The conditions which need to be satisfied to qualify for the relief must be met throughout the period of 12 months ending on the date of disposal. It remains the position that the relief is only available on a disposal of shares where the individual selling the shares holds at least 5% of the ordinary share capital. Sadly, the relief has not been extended to employees who have smaller shareholdings.
Inheritance Tax ("IHT") and Trusts
The nil rate band will remain at £325,000 until tax year 2014/2015. The Government will consult later in 2010 on bringing trust-related IHT planning products within the tax avoidance disclosure regime.
In some cases, a settlor (a person who sets up the trust) is liable to tax on trust income. From 6 April 2010, where a settlor receives a tax repayment because they are liable to income tax at a lower rate than the trust, they must repay this to the trust.
The personal allowance will be increased from 6 April 2011. The allowance is currently £6,475 and generally increases in line with the Retail Prices Index ("RPI"). For tax year 2010/11 it will be increased by £1,000 to £7,475.
This measure is designed to help those on lower incomes and basic rate taxpayers. To ensure higher rate taxpayers do not also benefit, the basic rate limit will be reduced.
From 6 April 2011, the ISA investment limits will be increased in line with the RPI. If the RPI is negative the limits will remain unchanged. The current limit is £10,200.
The Government announced it is proposing to replace the high income excess relief charge that was due to come into force on 6 April 2011 with a reduction in the annual allowance, possibly to somewhere in the region of £30,000 to £45,000.
From 2011/12, it will no longer be necessary to purchase an annuity from the age of 75. In the interim, pending consultation, the age is increased to 77. This provides some additional flexibility.
The Chancellor announced today that the standard rate of VAT will be increased to 20%. This increase will apply to all supplies made on or after 4 January 2011 but will not affect any goods or services which are currently exempt from VAT or taxed at the zero or reduced rates.
Stamp Duty Land Tax ("SDLT")
There was little affecting SDLT in today's Budget. Accordingly, for residential property:
the holiday for first-time buyers remains (at least for now) until 24 March 2012 for purchases up to £250,000; and
a new 5% rate will be introduced on purchases for more than £1m after 5 April 2011.
Taxation of Non-Domiciled Individuals
As stated in the Coalition Agreement, it has been confirmed today that the Government will review the taxation of non-domiciled individuals.
The Government repeated its promise to consult on the reform of Gift Aid. The Chancellor intends to explore proposed changes with the voluntary sector. Following a previous welcome commitment to amend the substantial donor rules, the Government will consult informally on draft law in the summer with a view to publishing final legislation in the autumn.
The Chancellor has also indicated considering positive changes to VAT rules for charities that share services.
If you think your business may be affected by any of the above or if you have any other questions, please contact:
0141 271 5347
Head of Tax
0141 303 2497
This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.