Many of the measures in the 2011 Budget had been announced previously. However, this is a summary of selected changes to personal tax which were unanticipated.
Capital Gains Tax – Entrepreneurs’ relief
Coutts’ many entrepreneurial clients will be interested in the raising of the ceiling for Entrepreneurs’ relief to £10m from 6 April 2011. Entrepreneurs’ relief can apply on the disposal (usually the sale) of a trading business or shares in a personal trading company. It means that the tax rate on the gain on such disposals is 10% (as opposed to the usual 28%).
From 6 April 2011 an individual making this type of disposal can claim that a gain of up to £10m is taxable at this lower rate. Since 23 June 2010 the ceiling has been £5m. The limit is a cumulative lifetime limit and thus there will now be a maximum saving per individual of £1.8m.
Broadly, in order to claim this relief, the person who makes the disposal has to have worked on the business or company for 1 year before the sale and, in the case of a company, has to own at least 5% of the shares and voting rights of the company. You should contact your tax adviser for further details if this may apply to you.
Residence in the UK
The government has stated its intention to bring in a statutory test for whether an individual is resident in the UK for tax purposes. Currently, the tests are based on case law and there has been much debate on the issue recently, following several new high profile cases. There will be a consultation in the summer over a new definition, and any new statutory test would apply from 6 April 2012. Most will welcome this change, as it should provide more certainty.
Changes for non-domiciles
Individuals who are not domiciled in the UK are entitled to claim not to pay UK tax on their non-UK income and gains unless they remit that income and gains to the UK (the "remittance basis"). Individuals who have been resident for 7 out of the last 9 tax years must pay a Remittance Basis Charge of £30,000 if they wish to be taxed in this way.
The Chancellor is proposing to increase the Remittance Basis Charge to £50,000 for those who have been resident in the UK for 12 years or more. There is also a proposal for the tax charge on the remittance of overseas income or gains to be removed if the income or gains in question are used for commercial investment in UK businesses. There will be consultation on both these proposed changes to the non-domicile regime over the summer, with the new rules likely to come into effect from 6 April 2012.
Non-domiciles will be pleased to hear that the government does not intend to make any further substantive changes to the special rules for their tax for the duration of this parliament.
The Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) is a tax relief for investing new capital in small trading companies. From 6 April 2011 the tax relief will be increased to 30% of the investment, and it is proposed to include bigger companies within the scheme from 6 April 2012.
Charitable giving
Many charities offer benefits to their donors, such as receptions and free tickets at arts events. For a donation to a charity to be eligible for Gift Aid tax relief, there are limits on the benefits that individuals may receive as a result of making the donations. The benefit must be less than 5% of the donation, but the annual limit is to be increased from £500 to £2,500. This could benefit people who give over £10,000 in a year to a charity.
The Chancellor also announced that, from April 2012, there will be a new reduction in the rate of IHT where 10% or more of an individual’s estate (after exemptions, reliefs and the nil rate band) is left to charity. For such individuals, the balance of their estate will only be charged to IHT at 36%. This is designed to encourage a culture where people give at least 10% of their estate to charities on death.
Again, the Government intends to consult on the details of this initiative and will publish a consultation document later this year.
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