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Personal taxation

Additional rate of income tax and income-related reduction of the personal allowance from 2010-11

The following income tax changes will have effect on or after 6 April 2010:

  • Taxable income over £150,000 will be subject to an income tax rate of 50%.
  • Dividends otherwise taxable at the 50% rate will be taxed at the new 42.5% dividend additional rate
  • Where an individual's 'adjusted net income' is above the income limit of £100,000, the personal allowance will be gradually reduced to nil. The amount of the personal allowance will be reduced by £1 for every £2 above the income limit. 'Adjusted net income' will be calculated in the same manner as applies to the adjustments of personal allowances for those aged over 65.
  • The trust rate will increase from 40% to 50%. The dividend trust rate will be increased from 32.5% to 42.5%

Taxation of personal dividends

Individuals with shareholdings of less than ten per cent in a non-UK resident company are entitled under the prevailing tax legislation to a non-payable dividend tax credit when they receive a dividend from that company. From 22 April 2009, individuals with shareholdings of ten per cent or more in a non-UK resident company will be entitled to a similar non-payable dividend tax credit. The only caveat is that the country from which the dividend is paid must have a double tax treaty with the UK that contains a non-discrimination clause.

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Changes to company car tax from 2011-12

Legislation will be introduced in Finance Bill 2009 to set the rates of company car tax for 2011/12 and subsequent years. From 2011/12:

  • The lower threshold CO2 emissions figure (130g/km for 2009/10 and 2010/11) will be reduced by 5g/km to 125g/km.
  • The £80,000 price cap that currently applies when calculating the cash equivalent of the car benefit will be abolished.
  • The focus of the legislation will change be on the CO2 emissions figure itself, rather than the means by which the car achieves that figure, resulting in the abolition of the various discounts for alternative fuels.

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Anti-avoidance: interest relief

With effect from 19 March 2009, legislation will be introduced in Finance Bill 2009 to block tax avoidance schemes that allow individuals to claim relief for interest payments that are used in avoidance arrangements that guarantee that the borrower will be able to make a profit as a result of the availability of the relief.

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Transfers of income streams

In cases where a person sells or otherwise disposes of a right to receive income, without selling the underlying asset from which the income derives, tax law provides that the receipt is taxed as income rather than as a capital gain - however these statutory rules are not comprehensive. A principles-based code is to be introduced in Finance Bill 2009 to ensure that all such receipts are taxable as income, rather than as capital. The legislation will have effect for transfers taking place on or after 22 April 2009.

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Avoidance using employment income legislation

Legislation will be introduced in Finance Bill 2009 to curtail avoidance schemes that seek to abuse reliefs available for employment-related liabilities and losses incurred by employees and former employees. These contrived employments are only established for the purposes of the schemes. Such liabilities and losses are generally created by intentional acts of default. The measures will be effective from 12 January 2009, but will have no impact if individuals using the relief are not seeking to avoid tax.

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Living accommodation provided by reason of employment: payments of lease premiums

Employees who occupy living accommodation provided by reason of their employment are subject to a tax charge usually based on the actual rent paid. Schemes have been devised whereby a large lease premium is paid, thereby depressing the level of the rentals, and also the tax charge. For leases entered into or extended on or after 22 April 2009, if a lease premium is paid for a lease of ten years or less, that premium will be treated as if it were a rental payment, and taxed by spreading the premium over the term of the lease.

The new rules will not apply to leases that are entered into in respect of premises that are used mainly for business purposes by the employer, and only partly for the domestic use of an employee.

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Reclaiming income tax, capital gains tax and corporation tax overpayments

Legislation will be included in Finance Bill 2009 to provide a means of reclaiming overpayments of income tax, corporation tax and capital gains tax where there is no other statutory route. It will replace any non-statutory claims. The legislation also amends the error or mistake relief rules to provide additional taxpayer safeguards. The following should be noted:

  • The measure will be effective on or after 1 April 2010.
  • The time limits for claiming repayments are currently five years and ten months to six years from the end of the period for which the return was made. This will be reduced to four years from 1 April 2010.

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UK personal allowances and reliefs for non-resident individuals

Individuals who are not resident in the UK normally have no entitlement to claim UK personal allowances and reliefs for income tax. There is a limited range of circumstances under which such allowances may be claimed, one of which is being a commonwealth citizen. HM Revenue and Customs have been advised that this is not compliant with the Human Rights Act, (and legislation will be introduced to withdraw that entitlement). The vast majority of individuals affected will still be able to benefit through other means, such as the provisions of a double tax treaty. The restriction for commonwealth citizens will have effect from 6 April 2010. The change will mainly affect citizens of countries such as Bahamas, Samoa and Tonga.

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Offshore funds

Legislation will be introduced in Finance Bill 2009 to change the definition of an offshore fund for UK tax purposes and to amend the existing powers to provide for the modernisation of the regime in regulations. The new definition of an offshore fund uses a characteristics based approach which has been the subject of detailed consultation. Transitional rules will provide 'grandfathering' for investors in existing arrangements. The new regime will be effective from 1 December 2009.

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Taxation of personal dividends - distributions from offshore funds

From 6 April 2008, individual shareholders with less than ten per cent of the equity in a non-UK resident company have been entitled to a non-payable dividend tax credit. The tax credit was withdrawn for offshore funds.

Legislation will be introduced in Finance Bill 2009 to restore the non-payable dividend tax credit for offshore funds which are largely invested in equities - the changes which are effective from 22 April 2009 will apply to all holdings in offshore funds. In cases where the offshore fund is substantially invested in interest bearing assets, individuals receiving distributions will be treated as having received interest rather than a dividend.

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Amusement machine licence duty - changes to rates and machine categories

Legislation will be introduced in Finance Bill 2009 to increase the amount of amusement machine licence duty [AMLD] for all categories of gaming machines. The new duty rates for gaming machines will apply from 4pm on 22 April 2009 for new applications, and the other changes will apply from 1 June 2009. Some further classes of gaming machines will be exempt from AMLD, and the stake and prize levels for category C machines will be increased.

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Real Estate Investment Trusts [REITs]: artificial restructuring and amendments

A number of amendments are being made to the legislation on REITs, including the following - which are effective from 22 April 2009.

  • An impediment in the legislation that would prevent potential REITs with 'tied premises' from entering the regime is being removed.
  • Groups of companies that restructure their activities to ensure that they are still within the qualifying conditions, when otherwise they would not be, will be prevented from so doing.
  • Owner occupied properties will be excluded from the tax exempt business of the REIT.
  • A REIT will be able to issue convertible preference shares.
  • The definition of a 'business asset' will be the same for group and single company REITs.

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Stamp Duty Land Tax [SDLT] - various changes

A number of amendments are being made to the SDLT legislation, including the following, which are effective from 22 April 2009:

  • Favourable SDLT treatment will be extended to purchasers under shared ownership schemes operated by profit making registered providers of social housing, where the scheme is assisted by public subsidy.
  • Simplifying the SDLT treatment of purchasers under rent to shared ownership schemes.
  • The SDLT relief for leaseholders of flats wishing to acquire the freehold of their block can now be claimed by all parties who are exercising their statutory rights of leasehold enfranchisement.
  • Relief will be available from the SDLT provisions and the Taxation of Chargeable Gains Act 1992 for persons wishing to raise finance by issuing alternative finance investment bonds using UK land assets as securities. Relief will be available from the date that the Finance Bill 2009 receives Royal Assent.

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Avoidance using life insurance policies

Legislation that is effective from 6 April 2009 will counter schemes that are designed to exploit income tax loss relief rules using offshore life insurance policies. Such schemes generally lead to no chargeable event certificate being issued as the policy does not show a gain, but produces a loss on which a loss relief claim is made.

Transitional provisions may also apply for the 2008/09 tax year for certain transactions arising on or after 1 April 2009.

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Child trust fund - payments for disabled children

The Government will contribute £100 per year to the child trust fund accounts of all disabled children, with £200 per annum for the severely disabled. The payments will commence in April 2010 for all children in receipt of disability allowance at any point in 2009/10.

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The remittance basis - minor amendments

A number of changes will be made in Finance Bill 2009 to the remittance basis regime which became effective from 6 April 2008, including the following.

  • An individual can use the remittance basis to bring property into the UK which has been purchased out of income from overseas investments and savings without triggering a liability to UK tax, provided the terms of certain exemptions apply. The scope of this exemption will be extended from 6 April 2008 to include property purchased out of foreign employment income and foreign chargeable gains, under the same conditions.
  • Individuals employed in the UK have to file a UK tax return if they have also received income from an overseas employment in the same year. This obligation will be removed from 6 April 2008 where the overseas employment income is less than £10,000, and any overseas bank interest is less than £100 in a tax year, providing that the income has been subject to foreign tax.
  • It has been specifically confirmed that if an individual has unremitted foreign gains and income of less than £2,000 in any tax year, that individual will be treated as having used the remittance basis unless HM Revenue and Customs are specifically notified that the arising basis applies.
  • The remittance basis rules will be amended so that the £30,000 remittance basis charge counts as UK income tax for the purpose of gift aid legislation.

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Furnished holiday accommodation (FHL)

Until now the FHL rules have applied only to furnished holiday accommodation situated in the UK. In particular, landlords with income from furnished holiday accommodation elsewhere in the European Economic Area (EEA) have not been able to qualify for the treatment. This discrimination may not be compliant with European law, and HM. Revenue & Customs has decided to regard the FHL rules as applying to holiday accommodation elsewhere in the EEA.

Claims and requests for treatment under the FHL rules

The FHL rules do not have to be applied to furnished holiday property in the EEA (outside the UK), however , if the FHL rules are applied to a property it will be treated as an FHL property for all relevant tax purposes.

Claims may be available for loss relief, capital allowances, landlord's energy saving allowance, certain capital gains tax reliefs (including business asset rollover relief, entrepreneurs' relief, relief for gifts of business assets, relief for loans to traders and exemptions for disposals of shares by companies with a substantial shareholding) and relevant earnings when calculating the maximum relief due for an individual's pension contributions.

Claims can be made within the normal time limits. In addition, until 31 July 2009 HMRC will accept late amendments to:

  • Income tax and capital gains tax returns for the year ending 5 April 2007
  • Corporation tax returns for accounting periods ending on or after 31 December 2006.

Repeal of the FHL rules

The FHL rules will be repealed from 2010/11. This repeal will affect properties situated in the UK and those situated elsewhere in the EEA

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