Income tax and personal savings

Income tax personal allowances

The Coalition Government announced in 2010 a long term commitment to increase the personal allowance for individuals aged under 65 to £10,000. For 2011/12 this is being increased from £6,475 to £7,475, and being further increased to £8,105 with effect from 6 April 2012.

The enabling legislation will be contained in Finance Bill 2012 and the basic rate limit will be reduced to £34,370. For 2012/13 all other income tax personal allowances and limits that are subject to indexation will be increased in line with the Retail Prices Index (RPI).

Changes to non-domicile taxation including the remittance basic user charge

The Government will be consulting on a number of potential changes to the taxation of non UK domiciled individuals, with a view to implementation in April 2012, including the following:

  • removing the tax charge when non-UK domiciled individuals remit foreign income or capital gains to the UK for the purposes of commercial investment in UK businesses
  • increasing the prevailing £30,000 annual charge to £50,000 for non-UK domiciled individuals who have been UK resident for 12 or more years and who wish to retain access to the remittance basis of assessment. The £30,000 charge will be retained for those non UK domiciled individuals who have been UK resident for at least seven of the past nine tax years
  • the simplification of some of the administrative burden.

The Government will also be consulting on the introduction of a statutory definition of UK tax residence to provide greater certainty for taxpayers.

Reduced child care relief for higher earners

The playing field for tax relief on child care payments will be levelled with effect from 6 April 2011. At present basic rate taxpayers can receive income tax relief of up to £900 per annum, whilst higher rate and additional rate taxpayers can receive up to £1,200 and £1,500 of support through employer-supported childcare schemes. The relief will be restricted to £900 per annum for all taxpayers.

Furnished holiday lets

This measure was previously announced in the Finance Bill 2011.  From April 2011, loss relief available from a Furnished Holiday Let (FHL) business may only be offset against income from the same FHL business. UK losses can relieve UK FHL income only and similarly with the European Economic Area losses. From April 2012 to qualify in a year, a property must be available to let for at least 210 days and actually let for 105 days. Businesses meeting the actually let threshold in one year may elect to be treated as having met it in the two following years ("period of grace"), providing certain criteria are met.

Restricting pension tax relief

The Government announced on 14 October 2010 that the annual allowance for tax relief on pension savings for individuals will be reduced from £255,000 to £50,000 from 2011/12, and the lifetime allowance will be reduced from £1.8m to £1.5m from 2012/13.  Draft legislation was published for comment on 9 December 2010.

ISA annual exemptions annual indexation

The ISA annual exemption will also be increased on an annual basis by reference to the CPI rather than the RPI from the 2012/13 tax year. The limit for 2011/12 has already been announced in October 2010 as £10,680 and £5,340 for the cash ISA.

Introduction of junior ISAs

The Government will be introducing a junior ISA scheme for UK resident children who do not have a child trust fund account. It is expected that these will be available from Autumn 2011.

Subsistence allowances paid to experts seconded to EU bodies located in the UK

Legislation will be introduced in Finance Bill 2011 to provide a new income tax exemption for subsistence allowances paid by a body of the EU located in the UK to experts who are seconded by their employers to work for the UK body. The measure will be effective in respect of periods beginning on or after 1 January 2011.

Charities and charitable giving

In order to encourage individuals and companies to make larger donations to charities, the annual limits on the benefits that may be received by the donors from those charities are being increased from £500 to £2,500.

The qualifying donation to the charity will need to be a minimum of £10,000 under Gift Aid to benefit from the change. The existing rule is that the benefit must not exceed 5 per cent of the gift and this will remain.

The change will have effect for benefits received by donors from charities as a consequence of donations made by companies in accounting periods ending on or after 1 April 2011 and donations made by individuals on or after 6 April 2011.

HMRC will publish revised guidance on Gift Aid benefits in April 2011 to clarify a number of problematic areas.

Gift Aid - online filing and record keeping

HMRC is intending to introduce a new online system for charities to register their details for Gift Aid and to make Gift Aid claims in 2012/13. Four new forms will be introduced to facilitate the collection of information and provide automatic checks on the data.

From April 2013 charities that receive small donations of £10 or less will be able to apply for a Gift Aid repayment without the requirement to obtain formal Gift Aid notifications to support the repayments. The maximum amount of small donations that can utilise this less formal method will be £5,000 per charity per annum. Only charities that have been dealing with Gift Aid for at least three years and also have a good compliance record will qualify for the new regime.

Withdrawal of the Self Assessment (SA) donate scheme

Under the SA donate scheme, taxpayers may currently elect that a repayment of tax due to them from HMRC be paid to a charity of their choice. Gift Aid may be applied to the donation if the taxpayer has paid enough tax to cover the charity's repayment claim.

Due to the low usage of the scheme and the possibility of fraudulent claims the scheme is being withdrawn in relation to repayments of tax in respect of:

  • tax returns for the tax year 2011/12 onwards; and
  • tax returns up to and including 2010/11 where the repayment is made on or after 6 April 2012.

Gifts of art

The Government is considering the introduction of a tax reduction for taxpayers who make a qualifying donation of a work of art or historical object of national importance to the State. A consultation process will take place in the next few months.