UK Budget 2011 - wide ranging anti-avoidance legislation, changes to tax rates and allowances and the treatment of non-domiciled individuals and much more.
The UK Budget was presented on 23 March 2011.
Summary of the Budget’s major changes
The main points arising from this Budget are set out below:
- Revised legislation on “disguised remuneration” is included in the Finance Bill 2011 published on 31 March 2011. This extremely broad anti-avoidance legislation should be reviewed by all those delivering reward (including loans) to employees and ex-employees through or involving third parties. We will be publishing a detailed update analysis in due course. In the meantime HMRC has published responses to Frequently Asked Questions on its website (see Resources below).
- Changes to the taxation of non-UK domiciled individuals have been announced. The government plans to introduce the following changes:When non-domiciled individuals remit income to the UK there will be no tax charge if the purpose of remitting the income to the UK is for commercial investment in UK businesses
- Simplification of the existing rules to remove unnecessary administration
- Increasing the existing £30,000 tax charge to £50,000 for those non-domiciled individuals who have been in the UK for greater than 12 years and who want to continue to enjoy the remittance basis of taxation. (Non-domiciled individuals who have been in the UK for between 7 and 12 years will still be liable for the £30,000 charge if they want to continue using the “remittance basis” of taxation.)
- There is to be a consultation on introducing a statutory definition of residence. It is intended that this definition will be implemented with effect from April 2012.
- Employees who join certain employer supported childcare schemes post 5 April 2011 will only be eligible for tax relief at the basic rate (and not the higher or additional rates as was the case prior to 6 April 2011). Please see the Resources section below for a link to our previous article on this subject.
- Increase in the lifetime limit of entrepreneur’s relief from £5 million to £10 million from 6 April 2011 – this relief has the effect of reducing capital gains tax to a 10% rate on gains up to the specified limit (compared to the otherwise applicable flat rate of 28%)
- The UK Chancellor announced that he regarded the controversial additional rate of income tax (50%) for those with income in excess of £150,000 as being a temporary measure and that he would review the amount raised.
- For investors who qualify for relief under Enterprise Investment Schemes and Venture Capital Trusts the income tax relief available on subscription for qualifying shares will increase to 30% from 20%. It is proposed that the maximum annual relief that an individual can claim will increase from 6 April 2012 to £1m from £500,000. It is also proposed that the current limits for the investee company will increase so that the employee limit will rise from 50 to 250, the gross assets test threshold will increase from £7 million to £15 million (pre investment) and the maximum annual investment will be £10 million all from 6 April 2012.
- The creation of 21 new Enterprise Zones. These will benefit from simplified planning rules and tax breaks which will include an exemption from business rates for five years for businesses moving into an enterprise zone and possibly enhanced capital allowances for businesses with a strong manufacturing focus.
Tax Rates and Allowances
Please see a summary of changes to UK tax rates and allowances from 6 April 2011 below:
- For income tax the personal allowance is increased to £7,475. However, the point at which higher rate income tax becomes payable has been reduced to £35,000. The effect of this is that more people will pay higher rate income tax from 6 April 2011 than they did previously
- The annual exemption for capital gains tax purposes is raised to £10,600 from £10,100 for the 2011/12 tax year
- The main rate of corporation tax is reduced to 26% for the financial year commencing 1 April 2011. It will be reduced to 25% from 1 April 2012, to 24% from 1 April 2013 and to 23% from 1 April 2014
Disguised Remuneration Legislation – Frequently Asked Questions
HMRC - Tax rates and allowances
Childcare vouchers to lose tax and National Insurance Contribution exemptions
For further information or to discuss the issues raised, please contact Guy Abbiss or Stephen Wright on +44 20 3051 5711