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INCOME TAX |
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Guardians and kinship carers See TM ¶2408 An income tax exemption, similar to that for adopters, will be made available to individuals caring for children placed with them under: » a special guardianship order (“special guardians”); or » a residence order, where the individual is not the child’s parent or step-parent (certain “kinship carers”). The exemption will apply to payments made to the carer on or after 6 April 2010. This measure was previously announced in the March 2010 Budget. Details will be in the Finance Bill to be introduced after the Parliamentary summer recess. Shared lives carers See TM ¶2408 A tax-free allowance, similar to that for foster carers, will be made available to individuals who: » provide care for up to three people under a local authority shared lives placement scheme; and » share their home and family life with those people. Foster children do not count towards the three-person limit, and siblings count together as one person (for this purpose only). The annual exemption will be: » £10,000 for each tax year; plus » £200 a week for each person cared for who is under 11 years old; plus » £250 a week for each person who is older. If the total receipts from providing care do not exceed the annual limit, they are tax free. Otherwise, the carer can opt to be taxed on a simplified basis instead of having the receipts taxed as trading income. These changes apply from 6 April 2010. For 2010/11, the existing simplified tax arrangements for adult placement carers can be used instead if the carer so chooses. Those arrangements will be abolished from 2011/12 onwards. This measure was previously announced in the 2009 Pre-Budget report. Details will be in the Finance Bill to be introduced after the Parliamentary summer recess. Furnished holiday lettings See TM ¶2777+ The favoured tax treatment for furnished holiday lettings will not now be withdrawn from 6 April 2010 as announced by the previous Government. Individual Savings Accounts (ISAs) See TM ¶2797 An individual may make subscriptions to an ISA up to an annual limit. For 2010/11 the limit is £10,200, of which £5,100 may be saved in cash. From 6 April 2011 the limits will be increased in line with the annual percentage increase in the Retail Prices Index (RPI), rounded off to a figure which allows for the easy calculation of monthly payments. The maximum cash element will be 50% of the overall limit. The limits will not be reduced if the RPI decreases. This measure was previously announced in the March 2010 Budget. Deduction of tax at source See TM ¶2846 An individual or other non-corporate person who makes a payment under deduction of income tax is required to report it to HMRC “without delay”. HMRC are to be given powers to specify when and how such a report must be made. Details will be in the Finance Bill to be introduced after the Parliamentary summer recess. Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS) See TM ¶2873, 2913 A number of changes will be made to these schemes, so that they continue to receive approval from the European Commission. These measures were previously announced in the March 2010 Budget. Details will be in the Finance Bill to be introduced after the Parliamentary summer recess, and the changes will apply from a date to be announced. VCTs only The requirement that shares in the VCT must be listed in the UK will be extended such that the shares will qualify if they are listed on any EEA market. The minimum proportion of the VCT’s holdings that must be eligible shares will rise from 30% to 70%. The definition of eligible shares will be amended to include shares that may carry certain preferential rights to dividends. EIS and VCTs Relief will be denied in cases where it is reasonable to assume that the company raising the funds is in difficulty. At present the company must carry on a trade wholly or mainly in the UK. This condition will be replaced by a requirement that the company must have a permanent establishment in the UK. Enterprise Management Incentive (EMI) schemes See TM ¶3467 At present a company wishing to operate an EMI scheme must carry on a trade wholly or mainly in the UK. To comply with EU state aid guidelines, this condition will be replaced by a requirement that the company must have a permanent establishment in the UK. This measure was previously announced in the March 2010 Budget. Details will be in the Finance Bill to be introduced after the Parliamentary summer recess, and the new requirement will apply to options granted on or after the date of Royal Assent. Tax credits See TM ¶3705+ From April 2011, tax credits will be index-linked to the Consumer Prices Index (CPI), rather than the Retail Prices Index (RPI) as at present. This is considered to be a better measure of inflation for the purpose, because it excludes most housing costs. The child element of the Child Tax Credit will increase by £150 more than CPI in April 2011, and by £60 more than CPI in April 2012, but the baby element will be removed from April 2011. Other rate changes are summarised below:
There will be further changes in 2012/13, of which the following were announced: » the family element of Child Tax Credit will be withdrawn immediately after the child element; » the 50-plus element will be withdrawn from Working Tax Credit; » the previously announced £4 supplementary Child Tax Credit for children aged up to 2 will not now be introduced; » the back-dating period for claims will be reduced from 3 months to 1 month; and » a disregard of £2,500 will be introduced for reductions of income during the year. Pension contributions – high earners See TM ¶3777 The Finance Act 2010 restricts tax relief on pension contributions from 6 April 2011 for individuals with annual earnings of £150,000. This complex legislation is likely to be repealed, and replaced by a system of reduced annual allowances with a broadly similar effect. A consultation process will take place with a view to making this change in time for 6 April 2011. Pension income – annualisation by age 75 See TM ¶3858 On retirement, an individual who is a member of a registered pension scheme may take part of the pension fund in the form of a tax-free lump sum at any time before his 75th birthday. Under existing rules, the balance of the fund must be used to secure an annuity before the individual reaches 75. If this is not done: » strict maximum and minimum limits apply to the annual income that can be withdrawn from the fund; » if the individual dies, tax is charged (at up to 70%) on any part of the fund which is not used to provide benefits to dependents or to charity; and » inheritance tax charges may apply on death. From 20 June 2010 these rules are amended for any individual who: » is a member of a money purchase scheme; » has not yet secured an annuity; and » did not reach his 75th birthday before that date. For such an individual: » the maximum and minimum withdrawal limits will not apply until his 77th birthday; and » a tax-free lump sum can still be withdrawn immediately before his 75th birthday. The amended rules will be finalised for 2011/12 following further consultation. In the meantime, for individuals who die at an age greater than 75, the: » maximum tax charge on death will be capped at 35%; and » existing inheritance tax charge will no longer apply. Personal allowance See TM ¶4392 The basic personal allowance for 2011/12 will be £7,475 (2010/11: £6,475). Pensioners’ personal allowance See TM ¶4395 Legislation requires that the personal allowance for over 65s be increased each year by the annual percentage increase in the Retail Prices Index (RPI). This legislation will be overridden for 2011/12, but the exact allowance will not be announced until after the publication of the RPI for September 2010. Overseas issues: seafarers See TM ¶4395 A UK seafarer who performs his duties wholly or partly overseas can claim a 100% income tax deduction for the attributable earnings. From 6 April 2011 this deduction will be extended to EU and European Economic Area residents who pay UK tax on their earnings as seafarers. This measure was previously announced in the 2009 pre-Budget report. Details will be in the Finance Bill to be introduced after the Parliamentary summer recess. Rates of tax See TM ¶4408 Legislation requires that the basic rate limit be increased each year by the annual percentage increase in the Retail Prices Index (RPI). This legislation will be overridden for 2011/12, reducing the limit such that higher-rate and additional-rate taxpayers will not benefit from the increase in the personal allowance (¶4392). The exact limit will not be announced until after the publication of the RPI for September 2010. In 2012/13 the basic rate limit will be frozen at its 2011/12 level. |
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