Personal Taxes

EIS investment limit doubled
Changes to the taxation of non-UK domiciled individuals
The introduction of a statutory residence test
A reduced IHT rate for charitable legacies
Annual ISA limits
Capital gains annual exempt amount
SA Donate abolished
Income tax and NIC reform
Income tax rates and allowances
NIC rates and allowances
Abolition of tax reliefs
IHT threshold frozen

EIS investment limit doubled
Updated 23 November 2011

Some major changes to the Enterprise Investment Scheme (EIS) were announced in the 2011 Budget. Significantly, from 6 April 2011, the rate of EIS income tax relief available for qualifying investors was increased, from 20% to 30% of the amount subscribed for shares.

In addition, the annual amount that an individual may invest through EIS, and still qualify for relief, was increased from £500,000 to £1 million. This is due to take effect from 6 April 2012, and will mean that the maximum relief available to an individual will increase to £300,000 in each tax year from 6 April 2012.

These changes were subject to EU approval under state aid rules, which was granted earlier this year. Additional changes to the qualifying company conditions are still awaiting EU approval, although all changes are expected to apply from 6 April 2012.

Changes to the taxation of non-UK domiciled individuals
Updated 23 November 2011

It is anticipated that, from April 2012, non-UK domiciled but UK resident individuals (non-doms) who elect to be taxed on the remittance basis will be charged an increased rate of £50,000 per annum where that individual has resided in the UK for at least 12 out of the previous 14 tax years. A £30,000 per annum remittance basis charge will continue to apply to non-doms who have enjoyed UK residence for at least seven of the previous nine years, but less than 12.

The Government has also announced incentives and tax breaks for non-doms who invest in UK businesses. The initial proposals provide that certain investments made by non-doms into either trading activity or commercial property in the UK, will not be deemed a remittance and therefore no UK tax would be triggered on the foreign source income or gains.

These measures were the subject of a consultation released in June 2011 and Grant Thornton's response to the consultation is available here.

Draft legislation is expected to be included in Finance Bill 2012, with the new measures set to take effect from April 2012.

The introduction of a statutory residence test
Updated 23 November 2011

Deciding whether you are resident or not in the UK has become increasingly difficult owing to changing guidance and court decisions. The recent high profile case of Gaines-Cooper highlighted how the absence of clear rules in the UK can lead to uncertainty for taxpayers.

It was announced in the 2011 Budget that the Government intends to introduce a robust statutory test for residency. This test, it is hoped, will provide the clarity that taxpayers have called for.

A consultation on the proposals, together with a prototype design of the test, was released in June 2011. The intended new rules are a mix of objective tests (day-counting) and more subjective rules looking at a sliding scale of how closely a taxpayer is linked to the UK. Grant Thornton's response to the consultation is available here.

The Government's response to the consultation is anticipated shortly, and draft legislation is expected to follow, with the new measures due to take effect from April 2012.

A reduced IHT rate for charitable legacies
Updated 23 November 2011

It was announced in the 2011 Budget that the Government intends to introduce a new inheritance tax (IHT) relief, that would encourage more individuals to donate to charity.

It is proposed that a new, lower rate of IHT will be introduced where people leave a proportion of their estate to charity when they die. Draft proposals were subsequently released in June 2011 and subject to a short period of consultation.

Currently, IHT is charged at 40% based on the value of an individual's taxable estate, after deducting any reliefs and exemptions available, such as the nil rate band (NRB). Broadly, under the proposals, the IHT rate will be reduced to 36%, where a minimum of 10% of the taxable estate (ie the value of the estate after deducting reliefs and exemptions) is left to charity.

The aim of this measure is laudable, but there are concerns over its complexity. Grant Thornton's response to this consultation is available here.

This change is expected to apply for deaths on or after 6 April 2012, however, further details and the Government's response to the consultation, are expected shortly.

Annual ISA limits
Updated 23 November 2011

The current Individual Savings Account (ISA) annual subscription limit, for 2011/12, is £10,680, of which £5,340 can be saved in cash.
This limit increases annually, and is currently indexed by the retail prices index (RPI), rounded to the nearest multiple of 120, making it easier to save into an ISA monthly.

At the Budget 2011, it was announced that from 6 April 2012, the limit will be indexed in line with the consumer prices index (CPI) instead. HM Revenue and Customs (HMRC) is expected to announce the limits for 2012/13 shortly.

A new tax-free children’s savings account, the 'Junior ISA', was launched on 1 November 2011. These new accounts are available to all UK resident children who do not already have a Child Trust Fund account.

The Junior ISA works in much the same way as an adult ISA, offering tax free returns on investments either in cash or stocks and shares. The current annual investment limit for Junior ISAs is £3,600. Unlike a normal ISA, however, there is no restriction on how the investment is split between cash or stocks and shares.

Capital gains annual exempt amount
Updated 23 November 2011

A person is entitled to realise an amount of capital gains tax free each tax year and this is known as the annual exempt amount. If this amount is not used in one tax year, it is not available to be carried forward to the next tax year.

At the Budget 2011, it was announced that the annual exempt amount (currently £10,600 for individuals in the 2011/12 tax year) will be increased annually in line with the consumer prices index (CPI) rather than the retail prices index (RPI) from April 2012.

The first tax year to be affected will be 2012/13. Parliament will still retain the right to override this automatic annual increase and set a different figure.

SA Donate abolished
Updated 23 November 2011

It was announced at Budget 2011 that the self-assessment (SA) Donate scheme will be withdrawn for repayments of tax due on tax returns for 2011/12 and subsequent tax years. Any repayments made in respect of earlier tax years either on or after 6 April 2012 will also no longer be able to take advantage of the scheme.

Under the SA Donate scheme, taxpayers who are due a repayment of tax from HM Revenue & Customs (HMRC) may opt for that repayment to be paid directly to a charity of their choice. Such donations may also qualify under the Gift Aid provisions.

The scheme was first introduced in 2005 but is no longer seen as cost effective and is potentially vulnerable to fraud. Instead, HMRC has confirmed that the resources saved from the withdrawal of SA Donate, will be redirected to support the introduction of a new online claims system for Gift Aid.

Income tax and NIC reform
Updated 23 November 2011

At the Budget 2011, the Chancellor announced his intention to consider the integration of the operation of the income tax and National Insurance contributions (NICs) systems, following an initial recommendation by the Office of Tax Simplification (OTS).

It is hoped that integrating the two systems will remove economic distortions, reduce burdens on businesses and improve fairness for earners, and forms part of the Government's aims to make current the UK tax administration simpler for taxpayers.

The Government’s next steps towards reform were announced on 14 November 2011, and sets out that any reform should:

• Improve transparency
• Deliver fairer outcomes
• Cut administrative costs for government

The document issued on 14 November 2011 also sets out a proposed timetable for reform. It is currently envisaged that the reforms will take place around 2017.

Income tax rates and allowances
Updated 23 November 2011

In the Budget 2011, the Chancellor announced that the personal allowance for under 65s would increase by £630, from £7,475 in 2011/12, to £8,105 in April 2012. This is part of the Coalition Government's pledge to increase the personal allowance to £10,000 by the end of the Parliament.

While it was announced that for the 2012/13 tax year, income tax allowances and thresholds are to continue to be increased in line with the retail prices index (RPI), this measure supersedes any RPI-related increase that would otherwise be due.

Furthermore, it was also confirmed that the higher rate threshold (the amount of income above which an individual will be subject to higher rate tax) would remain unchanged, at £42,475 for the 2012/13 tax year. Contrary to the Government's previous declarations, however, and regardless that inflation forecasts remain low, this fixing of the threshold may yet result in an increase in the numbers of individuals subject to the higher rate of income tax.

NIC rates and allowances
Updated 23 November 2011

At the Budget 2011, the Chancellor announced that the NIC rates and thresholds will be increased in line with the consumer prices index (CPI), rather than the retail prices index (RPI) from 2012/13.

From April 2012, therefore, the CPI will be used as the default indexation assumption for the employees' NICs primary threshold, the Class 2 small earnings exception, the Class 4 lower earnings limit, the Class 2 NICs rate and the Class 3 NICs voluntary rate.

Importantly, the CPI is normally lower than the RPI, meaning that NIC thresholds can generally be expected to rise more slowly in future years. However, it has also been confirmed that the upper earnings limit and upper profits limit will remain aligned with the higher rate income tax threshold, set at £42,475 for 2012/13, effectively reducing the amount of income subject to the main rate of NICs.

Abolition of tax reliefs
Updated 23 November 2011

The Office of Tax Simplification (OTS) carried out a review of all tax reliefs, allowances and exemptions prior to Budget 2011. The Chancellor had asked the OTS to identify reliefs that should be simplified or abolished in order to achieve a simpler tax system. The OTS' report was published on 3 March 2011 and recommended 45 reliefs for abolition; 17 reliefs for simplification and eight expired reliefs for removal from legislation.

At Budget 2011, the Chancellor announced his decision to remove 43 reliefs and some were abolished in Finance Act 2011.

A consultation was released in May 2011, seeking evidence on the impact of removing 36 of these reliefs. Several reliefs are expected to be abolished in Finance Bill 2012,, including the reliefs currently available for mineral royalties, the specific Class 4  NIC rules regarding the deduction of losses and life assurance premium relief.

Grant Thornton's response to this consultation is available here.

IHT threshold frozen
Updated 23 November 2011

In the 2009 Pre-Budget Report, the then Chancellor, Alistair Darling, announced that the inheritance tax (IHT) threshold would not be increased from £325,000, as was enacted to happen with effect from April 2010.

It was commented at the time that, given the impact of the downturn on the country's finances and also the decline of asset prices, this uplift was no longer a priority, not least because of the relatively low number of estates subject to IHT. However, it has since been confirmed that the threshold is set to remain at £325,000 until at least 5 April 2015.

While the increase in house prices may have slowed significantly, forecasts show a steady increase in gross domestic product (GDP) values over the next few years. Accordingly, many more individuals may find themselves drifting towards the IHT threshold between now and 2015, with initial estimates suggesting that the figure could rise from 3.8 million in 2010, to over 4.6 million by 2015.

Furthermore, when the threshold is next increased in 2015/16, this will be by reference to the consumer prices index (CPI) which is generally lower than the retail prices index (RPI) which has been used in the past.