Personal and trust taxation 2011

Personal and trust taxation

Income tax allowances and reliefs and credits2011/122010/11
Personal (basic)£7,475£6,475
Personal allowance reduced by 50% of income over£100,000£100,000
Personal (age 65-74)£9,940£9,490
Personal (age 75 & over)£10,090£9,640
Married/civil partners (minimum) at 10%*£2,800£2,670
Married/civil partners (age 75 & over) at 10%*£7,295£6,965
Age-related relief reduced by 50% of income over£24,000£22,900
Child Tax Credit (CTC):
– family element£545£545
– family element baby additionNil£545
CTC usually reduced where joint income is over£40,000£50,000
Rate of reduction of CTC41%6.67%
Blind persons£1,980£1,890
Rent-a-room tax-free income£4,250£4,250
Venture Capital Trust (VCT), £200,000 max30%30%
Enterprise Investment Scheme (EIS), £500,000 max30%20%
EIS eligible for capital gains tax re-investment reliefNo limitNo limit
Registered Pension Scheme:
– annual allowance£50,000**£255,000
– lifetime allowance£1,800,000£1,800,000
* Where at least one spouse/civil partner was born before 6 April 1935.
** Eligible members of registered pension schemes may carry forward unused annual allowance of up to £50,000 a year for three tax years from 2008/09.
Income tax rates2011/122010/11
Starting rate of 10% on savings income up to£2,560£2,440
Basic rate of 20% on income up to£35,000£37,400
Higher rate of 40% on income£35,001-£150,000£37,401-£150,000
Additional rate of 50% on income over£150,000£150,000
Dividends for:
– basic rate taxpayers10%10%
– higher rate taxpayers32.5%32.5%
– additional rate taxpayers42.5%42.5%
Pre-owned assets tax (charged as income) – minimum taxable£5,000£5,000
Trusts:
– standard rate band generally£1,000£1,000
– dividends (rate applicable to trusts)42.5%42.5%
– other income (rate applicable to trusts)50%50%

Income tax bands and personal allowance

All income tax rates for 2011/12 will remain at their 2010/11 levels. The personal allowance will rise to £7,475 and there will also be a £2,400 decrease in the basic rate limit, taking it to £35,000.

In 2012/13, the personal allowance will increase to £8,105 based on current inflation assumptions, with a corresponding decrease in the basic rate limit, leaving the effective higher rate threshold unchanged at £42,475 (ie £8,105 + £34,370). In subsequent years, the personal allowance will increase by at least the equivalent of the retail prices index (RPI), until it reaches £10,000.

SAVER: Protect your personal allowance

In 2011/12, your personal allowance is reduced by 50p for every pound your income is over £100,000. If you can reduce your income below £100,000, eg by making a pension contribution or choosing tax-efficient investments, you should benefit from the full allowance.

National insurance rates and bands

The main and additional rates of national insurance contributions (NICs) will increase by 1% from 6 April 2011 as previously announced. The primary threshold for employees will increase to £139 a week and the secondary threshold for employers will increase to £136 a week.

Indexation of direct taxes

From April 2012, the default indexation basis for all direct taxes, including income tax, NICs, inheritance tax and capital gains tax will move from the RPI to the consumer prices index (CPI). The change will apply for each year from 2012/13, except where there are specific policy commitments to make increases by different amounts, such as the personal allowance.

The employer NICs secondary threshold, the starting rate limit for savings income, income tax age-related allowances, age-related income limits, married couples’ allowances and blind persons allowance will be over-indexed compared to the CPI and continue to rise by the equivalent of the RPI for the course of the current Parliament.

Income tax and NICs reform

The Government will consult on reforms to integrate the operation of income tax and NICs and the modernisation of the administration of the personal tax system.

Online tax calculation

By 2012, the Government will build an online personal tax calculator to allow individuals to estimate how much income tax and NICs they should pay.

Enterprise investment schemes (EISs) and venture capital trusts (VCTs)

The rate of EIS income tax relief will rise from 20% to 30% from 6 April 2011. From 6 April 2012:

  • The annual EIS investment limit for individuals will double to £1 million.
  • The qualifying company size limits for EISs and VCTs will rise to 250 employees and the gross assets ceiling will increase to £15 million.
  • The annual investment limit for qualifying companies (EIS and VCT) will rise to £10 million.

All changes are subject to EU State aid clearance.

Review of non-domicile taxation

The Government will consult on reforms to the taxation of UK resident non-domiciled individuals from April 2012. The proposals will include increasing the existing £30,000 annual charge to £50,000 for non-domiciled individuals who have been UK resident for 12 or more tax years and who wish to retain access to the remittance basis of taxation.

There is also a proposal to remove the tax charge when non-domiciled individuals remit foreign income or capital gains to the UK for the purpose of commercial investment in UK businesses.

Statutory residence test

The Government will consult on the introduction of a statutory tax residence test for individuals, with legislation proposed for the Finance Bill 2012.

Furnished holiday lettings

From April 2011, new tax rules for furnished holiday lettings will take effect, so that loss relief may only be offset against income from the same business. The letting and availability thresholds will be increased from April 2012.

Employer-supported childcare and voucher schemes

From 6 April 2011, the main weekly tax exemption will remain at £55. However, for those who join the scheme after 5 April 2011, the exemption will be £28 for higher rate taxpayers and £22 for additional rate taxpayers. The condition that the scheme has to be ‘open generally’ will be relaxed for employees with earnings at or near the minimum wage. The change will be retrospective from 6 April 2005.

Approved mileage allowance payments (AMAPs)

The rate at which employers can pay a tax-free mileage allowance to employees who use their own cars for business will increase from 40p a mile to 45p from 6 April 2011. The lower 25p rate for mileage over the first 10,000 miles in a tax year is unchanged. The 5p passenger allowance will be extended to volunteers.

Company car tax rates

The appropriate scale percentages will be increased by one percentage point for 2013/14 for vehicles with CO2 emissions between 95g/km and 220g/km. Rates for emissions below 95g/km will not change.

THINK AHEAD: Take care in choosing your next company car

Company car tax scales are being revised for 2011/12 and will alter again in 2012/13. If you are changing your car, make sure you know what tax you will pay now and in the next tax year.

Fuel benefit charge

From 6 April 2011, the fuel benefit charge multiplier for calculating the tax payable on fuel provided by employers for company cars will increase from £18,000 to £18,800.

Company vans

The van and van fuel benefit charges will remain at £3,000 and £550 for 2011/12.

Expenses paid to MPs

The Finance Bill 2011 will include legislation (effective from November 2010) to ensure that the existing tax exemption for MPs’ accommodation expenses will continue to apply, following a simplification made to the MPs’ expenses scheme by the Independent Parliamentary Standards Authority (IPSA).

ISA limits

The limit for 2011/12 is as follows: £10,680 of which up to £5,340 can be saved in cash. From April 2012, the CPI rather than RPI will be used as the default assumption for the indexation of the ISA limits.

Junior ISAs

All UK resident children aged under 18 who do not have a Child Trust Fund will be eligible for Junior ISAs, and the accounts are expected to be available from autumn 2011. Draft regulations setting out further details will be issued in the week starting 28 March 2011 together with the Finance Bill.

Qualifying time deposits

From 6 April 2012, tax will be deducted at source from interest paid on new qualifying deposit accounts, which currently pay interest gross for fixed term deposits of £50,000 and over.

Restricting pensions tax relief

The annual allowance for tax-privileged pension saving will be £50,000 from 6 April 2011. The lifetime allowance will remain at £1.8 million, reducing to £1.5 million from April 2012 as previously announced. Unused annual allowance of up to £50,000 a year can be carried forward for up to three years. In certain circumstances, individuals with annual allowance charges over £2,000 will be able to meet these from their pension benefit, with schemes paying the tax when the charge arises.

THINK AHEAD: Maximise pension contributions while you still can

The lifetime allowance will be cut from £1.8m to £1.5m in 2012/13, but you will be able to claim ‘fixed protection’ and a £1.8m allowance before 6 April 2012. If you do so, you will lose the protection if you (or your employer) make any pension contributions after 5 April 2012.

Pensions annuitisation

The Finance Bill 2011 will remove the effective requirement to annuitise by age 77 (previously 75) from 6 April 2011, as announced in last June’s Budget. Legislation in the Finance Bill 2011 will also allow savers who have reached the age of 75 to align multiple drawdown pension funds under the same scheme, so that funds can be valued annually on the same date.

Employer asset-backed pension contributions

The Government will consult on changing the tax rules to limit the amount of tax relief available to employers when they make asset-backed contributions (‘in specie’ contributions) to their defined benefit pension schemes. The effect will be that the tax relief accurately reflects the increase in the fair value of pension plan assets.

Disguised remuneration

The Finance Bill 2011 will implement proposals published in December 2010 to target arrangements that seek to avoid or defer payment of income tax or NICs due on employment income or avoid restrictions on pensions tax relief, for example employee benefit trusts (EBTs) and employer financed retirement benefit schemes (EFRBS). Following representations, some changes have been made to the draft schedule to exclude certain matters such as arrangements that cannot be used for tax avoidance, eg defined employee car ownership schemes and certain short-term loans.

Reduction in the contracted out rebate

The level of the contracted out rebate for defined benefit pension schemes will be reduced from 5.3% to 4.8% from 6 April 2012 as announced in February. The option of defined contribution contracting out (including personal pensions) is already set to end from the same date.

Support for mortgage interest (SMI)

The waiting period for new working-age SMI claimants will remain at 13 weeks for a further year from January 2012. The limit on eligible mortgage capital for working-age claimants will also be left unchanged at £200,000 for one year from the same date.

Life insurance

The Government will introduce legislation to change the corporate tax treatment of protection business to align it with the tax treatment of other trading entities. The change will be effective from 1 January 2013.

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