資訊
Apr-27-2009 UK Budget 2009 - Corporate and Personal Tax Highlights
Matthew Corbin BSc. (Hons), Dip (ITM) TEP – Director
Summary
Higher income tax, restricted pension credits, reduced personal allowances for the wealthy and offshore fund taxation.
The UK’s labour government has set the UK’s public borrowing to rise to 12% of GDP for 2009 and has now clearly set its sights on whom they intend to assist in paying off this debt - namely the UK’s wealthy and persons investing outside of the UK.
Income Tax - 50% Rate
For earners with an income of £150,000.00 or more a new tax rate of 50% will apply effective 6th April 2010.
It had been announced that the intended rate of income tax would only be 45% and would not become effective until 6th April 2010. Additionally dividends received by individuals that fall into the same tax bracket will also be taxable at a new 42.5% dividend rate. This harmonises the one-ninth tax credit available for dividends paid by UK resident companies and increasingly by non-UK resident companies.
The 50% rate of tax will also apply to trustees administering discretionary trusts, with few exceptions. This rate will apply regardless of the actual income of the trusts under administration.
Capital Gains Tax
Annual exemptions from capital gains will rise to £10,100.00 and to £5,050.00 for trustees.
Inheritance Tax
The threshold (nil rate band) for inheritance tax will be raised to £325,000.00 on 6th April 2009. This is in line with previous announcements.
Stamp Duty Land Tax
A 3 month extension to the zero rate of SDLT payable on property below £175,000.00 has been announced. Originally this was due to expire on 2nd September 2009 however potential purchasers will now have until 31st December 2009 to take advantage before it reverts to the previous threshold of £125,000.00 on 1st January 2010.
UK Non-Domiciliaries
There have been no major changes to the rules introduced in 2008 covering UK resident non-domiciled individuals although some clarifications have been made on the remittance of income and gains from abroad.
Additionally further exemptions will apply to relevant foreign income remitted in the form of property purchases. These now cover foreign employment income and foreign capital gains.
Pension Scheme Contributions
For persons now falling into the top income tax bracket, over £150,000.00, the new budget imposes additional restrictions on the tax relief that can be applied for pension contributions.
It was announced that income tax relief will be progressively reduced to the basic 20% rate, from 6th April 2011. Under current rules up to £245,000.00 can be contributed at a higher rate (provided it is not over 100% of earned income). However, the amount for 2010/11 which can be applied to the current higher rate will be set at £255,000.00.
In an attempt to stop people benefiting from increased contributions at the higher rate before 6th April 2011, measures were announced that cover persons earning £150,000.00, persons who change their normal pattern of pension contributions, or persons who change the way in which their pension benefits are accrued if their total benefits or contributions exceed £20,000.00 per year.
Contributions which will trigger restricted relief until 6th April 2011, depend on the nature of the scheme and if it is considered a defined benefit scheme or money purchase arrangement.
Personal Allowance Revision
From 2010/11 persons with an ‘adjusted net income’ [1] earning £100,000.00 or more will have their personal allowances cut.
Each £2.00 of income above £100,000.00 will result in a cut of £1.00 off the personal allowance. It is perfectly possible for persons with sizable incomes to have a complete reduction of the allowance.
Corporate Tax
Companies and businesses will now be able to set aside a limited amount of their losses for up to three years for a limited period of time.
Unlimited losses can be set against profits of the prior year end. If there remain unutilised losses after this adjustment, a further £50,000.00 can be carried back by a further two years.
Taxation of UK Funds
UK authorised funds currently exempt from taxation on capital gains pay income tax on their income. As of 1st September 2009 they will be able to elect to become a ‘tax elected fund’. Investors will now be taxed as if they were to receive the income directly and the fund will no longer have to pay UK corporation tax. This is aimed at improving the number of investors participating in UK funds internationally.
Taxation of Personal Offshore Companies and Funds
Previous budgets have collectively dealt with the treatment of dividends paid by offshore companies and UK companies. Foreign dividends now benefit from the same tax credit that UK dividends receive, provided the shareholders own less than 10% of the company. The new budget has relaxed this rule and now shareholders with any percentage of shares can receive the benefit. However, the shares must now belong to a UK domiciled individual and the shares in the company must be from a “qualifying territory” [2]
Under certain circumstances UK residents invested in funds that are organised as companies will also be able to take advantage of this change. However, if the fund derives more than 60% of its income from assets generating income then the distribution will be treated as a payment of interest and will be taxed at the full rate without dividend tax credit being available. This will now mean that investors into offshore liquidity funds who currently have been able to claim a preferential dividend rate on return will now pay a higher rate of tax.
Taxation of Corporate Offshore Companies
From the 1st July 2009, subject to certain exempt classes of dividend and anti-avoidance rules, all dividends paid to UK companies by non-UK companies will be exempt from UK taxation in the hands of a UK company.
Certain restrictions on how interest costs can be used in relation to the formation and running of non-UK companies will now apply. This will be based on a complex formula that is aimed at preventing a UK company’s interest deductions exceeding the total funding costs of an international corporate group of which it is a member.
Transactions - Trading or Investment?
New legislation is expected which will clearly define what exactly non-trading investments are. Although not yet in statute, ‘trading’ activity which generates profits will, in future, be subject to income tax whereas ‘investment’ activity which generates a return will be taxable as a capital gain.
Shari’a Finance Arrangements
Land assets used as security for Islamic compliant lending schemes will now be able to apply for relief from SDLT and capital gains tax.
Name and Shame & New Amnesty
Finally, it has been announced that persons deliberately under-declaring their taxable income or who are inflating losses by more than £25,000.00 will be named and shamed, with details including their addresses being published quarterly by Her Majesty’s Revenue and Customs. Suitably named and shamed persons finding themselves on this list will be removed after one year provided that they are not guilty of further infringements.
Under a new announcement, persons will have until March 2010 to declare and pay any unpaid tax on undeclared offshore assets. Those who make an unprompted disclosure or a full prompted disclosure will not have their names and details published on the HMRC list.
UK non-domiciled expatriates and persons moving to the UK can still mitigate any potential liability to UK Inheritance Tax, Income Tax and Capital Gains Tax. We have a team of specialist trust and tax advisors ready to speak with you, call and make an appointment to discuss your circumstance and learn where you could make a saving today.
[1] This refers to gross income minus deductions which include trading losses, payments made gross to a pension scheme, gross Gift Aid contributions and previously taxed grossed up pensions scheme contributions.
[2] Qualifying Territory is a jurisdiction with a double taxation treaty with the UK in which there are no non-discrimination provisions.