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23 April 2009
Clerical Medical issues budget briefing papers to IFAs
Clerical Medical has produced 16 report briefing papers on different topics following yesterday's budget. The papers, which were posted online the day of the budget, aim to help IFAs advise their clients in the wake of yesterdays announcements. All the reports can be accessed by IFAs on the Clerical Medical Adviser Zone.*
Tim Rees, head of technical support and delivery, Clerical Medical, commented:
"It is crucial that IFAs have all the information they need following a budget, summarised into a clear and precise format. Our 16 briefing papers enable IFAs access to such summaries the day of the budget, enabling them to have all the key changes and implications to hand so that they can advise their clients on the changes to tax and pensions legislation."
In summary:
Pensions
Probably the biggest news story to come out of the Budget is the removal of higher rate tax relief for higher earners for pension contributions made on or after 6 April 2011. The good news is that Alistair Darling has not scrapped higher rate tax relief for all as was widely rumored in the run up to the Budget.
He has however announced two changes in a bid to limit tax relief for high earners.
New rules will apply immediately for those whose income now, or in the previous two tax years, was more than £150,000 and who make any change from yesterday to their normal pattern of contributions or the normal way benefits are accrued and the benefit accrued exceeds £20,000 a year. These new rules are intended to remove any advantage from increasing pension contributions before 6 April 2011. From 6 April 2011 it is intended to restrict tax relief for those earning over £150,000. Tax relief will be gradually tapered so that anyone earning over £180,000 will only receive basic rate tax relief.
It is estimated that the cut in tax relief for the 225,000 people affected by this change will earn the Treasury approximately £4.75bn. This follows on from announcements in the pre-Budget report intended to curb tax relief on pensions by freezing the lifetime allowance and the annual allowance for the five years following 5 April 2011.
Individual savings accounts (ISAs)
The increase to ISA contribution limits from £7,200 to £10,200 is good news, but it has possibly been over complicated by restricting the increase for the current tax year to investors aged over 50.
Income tax and National Insurance
All taxpayers will be affected by a ½% National Insurance increase which the Chancellor proposed would apply from April 2011 in his November pre-Budget report.
In a move to bring forward tax increases for higher earners, individuals earning above £150,000 will have to face the prospect of 10% tax increases from 6 April 2010 instead of 5% increases from 6 April 2011. This tax increase will also apply to trustees.
In a move to bring forward tax increases for higher earners, individuals earning above £150,000 will have to face the prospect of 10% tax increases from 6 April 2010 instead of 5% increases from 6 April 2011. This tax increase will also apply to trustees.
Increase in higher rate tax to 42½% for dividend income and to 50% for other income from 2010/2011 for individuals earning over £150,000 and for trustees (without an income threshold)
Personal income tax allowance and basic rate limit already raised for 2009/2010
Individuals earning over £100,000 will lose part or all of their personal allowances in 2010/2011; based on a reduction of £1 for every £2 of income in excess of £100,000
National Insurance rates have remained unchanged for 2009/2010. The upper limit was increased from £40,040 to £43,875 for 2009/2010; the lower limit was increased in line with inflation.
National Insurance rates to increase by ½% from 2011/2012
However, it's not all gloom and doom…
It appears that it will be possible to deduct pension contributions to reduce income below the £100,000 income limit to preserve the personal allowance.
Employees can reduce the impact of increased National Insurance charges by using salary sacrifice. Although, it will be necessary to consider the interaction of salary sacrifice with the new pensions tax relief restrictions.
Additionally, investment bonds can be very convenient for individual and trustee investments, as income tax can be deferred, perhaps until a lower tax rate applies on encashment in retirement.
Corporation tax
The additional loss relief made available to companies in November's pre-Budget report has been extended to 23 November 2010 (5 April 2010 for unincorporated business entities). This will help some businesses to get back a tax refund earlier than usual.
The small companies' rate of tax remained at 21% from 1 April 2009. A 1% increase to 22% was previously deferred to 1 April 2010, but was not mentioned yesterday by the Chancellor.
The full rate of corporation tax remained at 28% from 1 April 2009, and is proposed to remain at this level through to 31 March 2011.
Child tax credit
*https://ifa.clericalmedicalsecure.co.uk/Content/Budget2009.aspx
The papers are on the following topics:
- Budget summary
- Income tax
- National Insurance
- Employee benefits
- State benefits
- Life policyholder taxation
- Mutual fund taxation
- Offshore funds
- Pensions
- Capital gains tax
- Tax efficient investment
- Inheritance tax
- Corporation tax
- Stamp duty
- VAT
- Anti-avoidance
About Clerical Medical
Clerical Medical, founded in 1824, is an award-winning provider of pensions and investments. Products are provided to consumers through independent financial advisers.
www.clericalmedical.co.uk
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