United Kingdom: Emergency Budget June 2010
On 22 June 2010, the Chancellor of the Exchequer presented the UK Emergency Budget 2010, following the election in May that resulted in a change of government, with the UK now led by a Conservative-Liberal Democrat coalition. In this Alert we have set out the main points of the Budget speech of interest to internationally mobile employees and their employers.
Please note that these changes will be finalised in the Finance No.2 Act 2010.
The key changes include an immediate rise in Capital Gains Tax (CGT) from 18% to 28% for higher and top rate tax payers, a rise in the personal allowance from £6,475 to £7,475 and a review of the taxation of pension contributions for 2011/12 onwards. The Government has also stated that there will be a review of the taxation regime for non-UK domiciled individuals. However, no details were provided at this time.
The Chancellor announced that from 2011/12 the personal allowance of £6,475 will rise to £7,475. However, the point at which individuals start to pay higher rate tax will be reduced from £37,400 to offset the benefit of the rise in personal allowances for higher rate tax payers. The level of this reduction will be confirmed in the autumn.
However, individuals with incomes exceeding £100,000 per annum already have their personal allowance progressively withdrawn and most individuals taxed on the remittance basis lose their personal allowance in any event. Consequently, the adjustment of the higher rate threshold will result in an increase in tax for such individuals, as more of their income will be subject to tax at the higher rate. All rates and bands for income tax for 2010/11 have been left unchanged from those announced in the March 2010 budget. These are detailed below:
|Starting rate for
|0 – 2,440|
|Basic rate 20%||0 – 37,400|
|Higher rate 40%||37,401 150,000|
|Additional rate 50%||Over 150,000|
The previous government had announced a 1% increase to the rate at which employers and employees pay national insurance contributions from 2011/12. The Government has confirmed that the increase in these rates will go ahead from 6 April 2011. However, the Chancellor announced that the level at which employers will pay Employers National Insurance Contributions will rise by £21 per week above indexation from April 2011.
This measure has replaced the previously proposed reversal of the 1% increase to the rate at which employers pay National Insurance Contributions.
Capital gains tax
From midnight on 22 June 2010, the rate of CGT applicable to an individual will vary according to the rate at which they pay income tax. Basic rate tax payers will continue to pay CGT at a rate of 18%. However, higher and top rate tax payers will pay CGT at a rate of 28%. The annual exemption will remain at a level of £10,100 for 2010/11. The Chancellor also stated that he intends to raise the annual exemption in line with inflation in future years. However, as in previous years, individuals who elect to be taxed on the remittance basis lose the benefit of the annual exemption.
The Chancellor announced a review of the measures to restrict pensions tax relief for higher earners, citing concerns over the administrative costs of the measures the previous government had proposed to implement in 2011/12. The Government has stated that it will repeal the legislation that is already on the statute book in relation to these measures. The Chancellor stated that a restriction may be implemented through a reduction in the annual allowance of pension contributions that can receive tax relief. The Government has also confirmed that HMRCs review into Employee Benefit Trusts (EBTs) will also cover Employer Financed Retirement Benefit Schemes (EFRBS).
Review of the taxation of non-UK domiciled individuals
The Government has announced that it intends to review the taxation of non-UK domiciled individuals. It has stated that it intends to introduce what it regards as a fairer system of taxation in exchange for greater certainty over the tax position of such individuals.
Employers should evaluate their budgets and costing assessments for UK assignments in light of the changes to the personal allowance and the higher tax rate threshold for 2011/12. Employers should also review their pension arrangements as further details are released regarding the Government’s review on the taxation of pension contributions.
Source: Ernst & Young