UK: Budget 2011 - Key Points For Private Individuals

Last Updated: 28 March 2011
Article by Lyndsey L.M. West

Introduction

The tax changes for private clients announced in George Osborne's budget speech on 23 March support the push for entrepreneurialism on one hand and the notion of "giving something back" on the other. Thus, both entrepreneurs' relief and the Enterprise Investment Scheme are to become more generous. At the same time giving to charity will become more tax efficient.

On the international front, the announcement of a consultation for a statutory residence test, with a view to its introduction by April 2012, is very welcome. The announcement of a £50,000 annual charge (up from £30,000) for non-UK domiciled remittance basis users who have been UK resident for 12 tax years may be balanced by the promised simplification of aspects of the current rules "to remove undue administrative burdens". We await the consultation on this.

The changes announced by the Chancellor fall into three categories. First, consistent with the Government's aim to make tax policy more transparent, a number of changes coming into effect on 6 April 2011 were announced in November's pre-Budget report and we have already seen the draft legislation to be enacted in Finance Act 2011. A further set of changes, announced today, take effect from 6 April 2011. Finally the Government will consult during the current tax year on a final set of changes with a view to introducing them in Finance Act 2012.

We await publication of the Finance Bill itself, due on 31 March. Meanwhile, this briefing note is based mainly on the Chancellor's speech and on the documentation published immediately afterwards on HM Treasury's website.

Private individuals and business

Entrepreneurs' relief The effect of entrepreneurs' relief is to reduce from 28% to 10% the rate of capital gains tax ("CGT") on disposals by individuals of entrepreneurial businesses. Detailed requirements must be satisfied for the relief to apply. This is a lifetime relief and as announced by George Osborne on 23 March, the amount of the relief is to be doubled from £5m to £10m. This takes effect from 6 April 2011.

Enterprise Investment Schemes ("EIS") The rate of income tax relief given under the Enterprise Investment Scheme ("EIS") is to be increased from 20% to 30% with effect from 6 April 2011, but subject to State aid approval. Further changes are proposed for Finance Bill 2012. The EIS provides tax incentives for individuals to invest in shares in companies that meet certain conditions and carry on qualifying activities. It is intended to help small, higher risk, unquoted trading companies to raise start up finance by issuing ordinary shares.

Furnished Holiday Lettings ("FHLs") FHLs can be treated as a trade, rather than as a property business, provided certain conditions are met. Trading treatment is more beneficial for tax purposes. However, to comply with EU law the relief is extended to lettings throughout the European Economic Area but, as previously announced the conditions for it to apply are tightened up. In particular from 6 April 2012 the property must be available for letting for 210 days (up from 140) and .the days on which the property must be actually let is increased from 70 to 105 days. This last test is likely to be the most difficult condition to satisfy but businesses which meet the "actually let" requirements in one tax year can elect to be treated as having met it in the following two years provided certain conditions are met. In the Budget it is now indicated that these "period of grace" provisions apply from 2010/11.

Private individuals and giving something back

Inheritance tax ("IHT") If you give to charity at least 10% of your estate you will pay a reduced rate of IHT on death. (The 10% of your estate is calculated after deducting inheritance tax exemptions such as the spouse exemption, reliefs such as business property relief and the nil rate band). The reduced rate of IHT is 36% (compared to the normal rate of 40%). The reduced rate will apply in respect of deaths occurring on or after 6 April 2012. If an individual with a taxable estate of £100,000 (having used his nil rate band during his lifetime) on death gives £10,000 to charity and £90,000 to his children, the IHT on his estate will be £90,000 x 36% ie £32,400. Thus £10,000 will go to charity and the children receive £57,600. If the charitable gift had not been made the children would have received £60,000 and the Exchequer would have received £40,000. In other words the gift to charity of £10,000 in effect "costs" the children only £2,400.

Gift Aid: donor benefits Legislation is to be introduced in Finance Bill 2011 to increase, from £500 to £2,500, the maximum value of benefits that individuals (and companies) may receive following a Gift Aid donation to a charity of more than £10,000. This limit is subject to the existing rule that the benefit must not exceed 5% of the gift.

Gift Aid: records for small donations From April 2013 charities receiving small donations of £10 or less (but capped at a total of £5,000 per charity per year) will be able to claim Gift Aid without obtaining Gift Aid declarations from donors. This will help, for example, in relation to street collections. To qualify for this the charities will have to have been recognised by HMRC for Gift Aid purposes for at least three years, have been operating Gift Aid successfully during that time and have a good compliance record.

Gifts of art A consultation will take place over the summer about the possible introduction of a tax reduction for individuals giving a art works or historical objects of national importance to the state.

International private individuals

Remittance basis At the moment non-domiciliaries who elect for the remittance basis (and where necessary pay the £30,000 charge straight to HM Revenue & Customs) are taxed on the so-called remittance basis. This means that they pay UK income and capital gains tax on non-UK income and gains only if such income and gains are remitted to the UK. Two main changes are proposed to this:-

  • There should be no UK income or capital gains tax charge for non-domiciliaries when they remit foreign income or capital gains to the UK for the purpose of commercial investment in UK businesses.
  • The £30,000 annual remittance basis charge is to be increased to £50,000 for UK resident non-domiciliaries who have been resident in the UK for 12 tax years (but the £30,000 charge will remain for those who have been resident in seven out of nine tax years but fewer than 12 tax years).

In addition to the foregoing there is to be some simplification of the rules for non-domiciliaries. A consultation document on these changes is to be issued in June and the Government intends to implement the reforms from April 2012.

Statutory Residence Test In view of the complexity and lack of clarity in the UK's law on residence, the Government will be consulting on introduction of a statutory definition of residence. A consultation document is to be issued in June with a view to the measure being implemented from April 2012.

Other measures affecting private individuals

Income Tax: Personal Allowance For the tax year 2011/12 (starting on 6 April 2011) the personal allowance for individuals aged under 65 is to be increased from £6,475 by £1,000 to £7,475. However there is to be a corresponding reduction in the level of income at which the 40% tax rate starts from £37,400 to £35,000. This is to ensure that the increase in personal allowance does not extend to those paying higher rate income tax.

Restricting pensions tax relief As previously announced the annual allowance for tax relief on pension savings for individuals is to be reduced from a maximum of £255,000 to £50,000 from 2011/12. The lifetime allowance is to be reduced from £1.8m to £1.5m from 2012/13. Tax charges apply to those whose pension savings exceed these allowances. However, where highly paid taxpayers in final salary schemes breach these allowances, the legislation as originally proposed (published on 9 December 2010) is to be amended so that where individuals' savings breach the annual allowance resulting in tax charges, in some cases such individuals will be able to elect that the tax liability be met from their pension fund. This is most likely to be relevant to highly paid employees in final salary schemes.

Conclusion

The shape of some of the more important changes for private clients announced today, (including the new inheritance tax relief for charitable giving and the new rules for non-domiciliaries) is still sketchy. For the time being it will be a case of "watch this space". But we believe that many of the measures outlined above are likely to be positive for private individuals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.