Emergency Budget - Evolve's response
Tuesday, 22 June 2010 17:05 |
The most pleasant surprise from the Emergency Budget, in respect of personal financial planning, was the lack of tinkering and additional complication. In particular, recent budgets have made the pensions landscape even more complicated than it already was and the fact that the Chancellor has announced an intention to simplify pensions rather than complicate them further is to be welcomed. We were also pleased that the changes to Capital Gains Tax (CGT) were less onerous than some commentators had predicted.
A few areas worth highlighting:
Entrepreneurs’ relief from CGT will remain but will no longer be expressed as reduction of 4/9ths of the total gain. Prior to the budget it was 10% (i.e. 18% minus 4/9ths of 18%). The lifetime limit on gains qualifying for this relief is increased immediately from £2 million to £5 million and all qualifying gains will be taxed at 10%. This is great news for many of our business owning clients.
For individuals whose income and gains remain below the basic rate band, the rate of CGT will remain at 18%. For those whose income and gains exceed the basic rate band, the rate will increase to 28% as from 23/06/2010.
The CGT changes were nowhere near as draconian as we had feared. In particular, we were delighted that the CGT allowance has been kept at £10,100 p.a. as this allows our clients to carry on with sensible financial planning strategies. With careful planning, most of our clients won’t crystallise gains of more than £10,100 p.a. This means that the CGT regime is still favourable for all levels of taxpayer and encourages long term saving and investment. A 28% tax rate is more attractive than some of the figures that were being anticipated prior to the Budget.
We suspect the change from 18% to 28% for higher rate taxpayers is going to have most impact on people with second properties. Individuals with stockmarket investments with, say, a £30,000 gain can choose to stagger their sales over three tax years to avoid CGT. When you sell a property you generally sell it outright. Therefore around two thirds of that same £30,000 gain will be taxed and could, therefore, be charged at the higher rate.
Overall, most 40% and 50% taxpayers will be pleased that the CGT changes didn’t go further.
The Government has stated that from April 2011 it will end the existing rules on compulsory annuitisation at age 75. The age 75 requirement changes with immediate effect to age 77, but only for individuals who have not yet reached age 75. We await further details on this.
The Government also announced that it is considering restricting pensions tax relief from 06/04/2011, by reforming the existing pension savings allowances, principally by significantly reducing the annual allowance.
The Government will discuss the changes with interested parties but early indications are that the level of a reformed annual allowance may be in the region of £30,000 to £45,000.
The indication is that these reformed allowances would replace the complicated High Income Individual excess relief charge, which is currently due to come into force on 06/04/2011.
More detail is required on both of these pension measures but early indications are that they represent positive changes for many of our clients.
A few areas worth highlighting:
Entrepreneurs’ Relief
Entrepreneurs’ relief from CGT will remain but will no longer be expressed as reduction of 4/9ths of the total gain. Prior to the budget it was 10% (i.e. 18% minus 4/9ths of 18%). The lifetime limit on gains qualifying for this relief is increased immediately from £2 million to £5 million and all qualifying gains will be taxed at 10%. This is great news for many of our business owning clients.
CGT Changes
For individuals whose income and gains remain below the basic rate band, the rate of CGT will remain at 18%. For those whose income and gains exceed the basic rate band, the rate will increase to 28% as from 23/06/2010.
The CGT changes were nowhere near as draconian as we had feared. In particular, we were delighted that the CGT allowance has been kept at £10,100 p.a. as this allows our clients to carry on with sensible financial planning strategies. With careful planning, most of our clients won’t crystallise gains of more than £10,100 p.a. This means that the CGT regime is still favourable for all levels of taxpayer and encourages long term saving and investment. A 28% tax rate is more attractive than some of the figures that were being anticipated prior to the Budget.
We suspect the change from 18% to 28% for higher rate taxpayers is going to have most impact on people with second properties. Individuals with stockmarket investments with, say, a £30,000 gain can choose to stagger their sales over three tax years to avoid CGT. When you sell a property you generally sell it outright. Therefore around two thirds of that same £30,000 gain will be taxed and could, therefore, be charged at the higher rate.
Overall, most 40% and 50% taxpayers will be pleased that the CGT changes didn’t go further.
Pensions
The Government has stated that from April 2011 it will end the existing rules on compulsory annuitisation at age 75. The age 75 requirement changes with immediate effect to age 77, but only for individuals who have not yet reached age 75. We await further details on this.
The Government also announced that it is considering restricting pensions tax relief from 06/04/2011, by reforming the existing pension savings allowances, principally by significantly reducing the annual allowance.
The Government will discuss the changes with interested parties but early indications are that the level of a reformed annual allowance may be in the region of £30,000 to £45,000.
The indication is that these reformed allowances would replace the complicated High Income Individual excess relief charge, which is currently due to come into force on 06/04/2011.
More detail is required on both of these pension measures but early indications are that they represent positive changes for many of our clients.
