Budget 2010 - Key Points for Dentists

Yesterday, the Chancellor of the Exchequer, Alistair Darling delivered his final budget before the General Election.

This year the budget delivered largely what had been anticipated. Headline issues such as the exemption for first time buyers from stamp duty on properties under £250K for the next two years will help regeneration of the housing market although the fact this will be paid for by a stamp duty increase (up to 5%) for property sales over £1 million, continues the theme of increased taxes for higher earners.

Following the introduction of the tax changes for those earning over £100,000 and those over £150,000 from 6th April 2010, the budget also includes a series of anti-avoidance measures to block tax avoidance loopholes. The announcements therefore are likely to affect a significant number of dentists.

We've listed some further information on the key changes below, with the more relevant ones at the beginning.

Individual Savings Accounts
The ISA limit has increased to £10,200, up to £5,100 of which can be saved in cash.
This increase has taken effect in two stages.
• Savers aged 50 and over in the 2009-10 tax year can deposit £10,200 into their 2009-10 ISA, up to £5,100 of which can be in cash.

• For all other investors the increased limit takes effect from 6 April 2010. From this date all savers will be able to deposit £10,200 into their 2010-11 ISA, up to £5,100 of which can be in cash.

The Chancellor has announced that the investment limit for Individual Savings Accounts will increase in line with RPI on an annual basis.

Pensions
It had already been announced that the levels of the Standard Lifetime Allowance and Annual Allowance have been frozen at the 2010/11 rates for a further five tax years i.e. until 2015/16.

The Government has stated, however, that it remains open to proposals for further simplification of the trivial commutation rules and, in particular, is interested in proposals about:-
- Extending rights to commute personal pension funds worth up to £2,000; and
- Allowing couples to pool small pension pots in order to achieve better value by buying a joint life annuity.

Limiting Relief for High Income Individuals
The Special Annual Allowance will remain in force for one more tax year and will continue to affect high income individuals with ‘relevant’ income of £130,000 or more.

The Government has also reaffirmed its intention to restrict the tax relief available on pension savings, with effect from 6 April 2011, for people with taxable gross ‘income’ of £150,000 or more.

Capital Gains Tax
The Chancellor has announced that the Capital Gains Tax (CGT) rate of 18% will remain, with the annual exempt amount staying at £10,100. There has been an increase in Entrepreneur’s Relief lifetime limit from the first £1m to the first £2m of qualifying gains. This change has effect for disposals on or after 6th April 2010.

Many had predicted that the CGT rate could rise to prevent the introduction of schemes that turn income into ‘capital’ to take advantage of the lower CGT rate. It will be interesting to see the reaction to this announcement and if income-shifting methods are employed to take advantage of the lower CGT rate, and the Government’s reaction to these in the future.

Inheritance Tax
The nil rate band has been frozen for four years. It will therefore remain at £325,000 from the 2010/11 tax year up to and including the 2014/15 tax year.

Corporation Tax
The Budget did not bring any changes to corporation tax rates, with the small companies’ rate remaining frozen at 21% and the main rate remaining frozen at 28%

Personal Allowances
Personal allowances will remain at their existing amounts.

This means that the personal allowance for those under 65 will remain at £6,475, the personal allowance for those aged 65 to 74 will remain at £9,490 and the personal allowance for those aged 75 and over will remain at £9,640.

The amount of the personal allowance will be gradually withdrawn for all individuals (regardless of age) with ‘adjusted net incomes’ above £100,000 as provided for by section 35 of ITA. The rate of reduction will be £1 of personal allowance for every £2 of income above the £100,000 limit.

Rates
The main rates of income tax for the 2010/11 tax year will remain at 20% for basic rate taxpayers and 40% for higher rate taxpayers.

The 20% basic rate applies to taxable income up to the basic rate limit of £37,400 and the 40% higher rate applies to taxable income above £37,400.

The 10% starting rate for savings will remain at £2,440 but an additional top rate of 50% tax will apply to taxable income above £150,000.

There will be three rates of tax for dividends – 10%, 32.5% and a new higher 42.5% for dividends otherwise taxable at the new 50% rate.

There are therefore no changes to the previous announcements regarding income tax for the 2010/11 tax year.

Stamp Duty Land Tax
In a widely predicted move, although with still some surprise, the Chancellor has today announced a two-year Stamp Duty Land Tax relief for first time buyers for residential property purchases up to £250,000. First time buyers will be able to claim relief where the date of completion is on or after 25th March 2010 and before 25th March 2012.

Legislation in the Finance Bill 2010 will introduce a higher stamp duty land tax rate of 5% for purchases of residential property where the consideration exceeds £1m. The new higher rate will apply to purchases of residential property where completion is on or after 6th April 2011.

National Insurance
For 2010/11 the lower earnings limit (linked to the basic State pension) will increase by £2 to £97 per week. All other National Insurance rates and thresholds will remain unchanged.

The Upper Earnings Limit (UEL) for primary Class 1 National Insurance contributions (NICs) has been aligned with the higher rate income tax level. For 2010/11, therefore, the threshold is £43,875.

From 2011/12 in addition to the 0.5% increases already announced at the Pre-Budget Report 2008:
• The main rate of Class 1 and Class 4 NICs will be increased by a further 0.5% to 12% and 9% respectively.
• The Class 1 employer rate of NICs will be increased by a further 0.5% to 13.8%. This increased rate will also apply to Class 1A and Class 1B contributions.
• The additional rate of Class 1 and Class 4 NICs will be increased by a further 0.5% to 2%.
• The primary threshold and lower profits limit will be increased by £570 to compensate the lowest earners.

This should provide an added incentive for both employers and employees to take advantage of salary sacrifice / dividend income.

Capital Allowances
There has been an increase in the threshold of the Annual Investment Allowance from £50,000 to £100,000. The increase will have effect for expenditure incurred on or after 1st April 2010, for businesses within the charge to Corporation Tax and on or after 6th April 2010, for businesses within the charge to Income Tax.

The temporary 40% first-year allowance (FYA) for expenditure on general plant and machinery (expenditure on plant and machinery that would normally be allocated to the main capital allowance pool) has now come to an end. It applied to qualifying spending incurred in the 12-month period beginning on 1st April 2009 for the purpose of corporation tax, and on 6th April 2009 for the purpose of income tax.

The temporary FYA was available to:

• any individual carrying on a qualifying activity (this includes trades, professions, vocations, ordinary property businesses and individuals having an employment or office);
• any partnership; and
• any company.

Anti-Avoidance
HMRC are introducing a number of anti avoidance measure for the following areas

 Revising the disclosure of tax avoidance schemes and increasing the penalties for non-disclosure
 Increasing penalties for individuals and businesses with financial interests outside the UK and failing to declare the full extent of their tax liabilities
 Corporate abuse of Share incentive plans
 Abuse of CSOP(Company Share Option Schemes)
 Individuals entering into transactions to obtain income tax advantages

Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT)
New legislation will come into effect relating to EIS and VCT schemes. These changes will take effect on and after the date the legislation receives Royal Assent.

VCTs only
The current legislation requires the shares making up a VCT’s ordinary share capital to be included in the official UK list throughout the relevant accounting period. This will be replaced with a requirement that the shares instead be admitted for trading on any EU regulated market. The effect is that VCTs will be able to be listed on markets throughout the EU/EEA.

The current legislation requires that at least 30 per cent of the VCT’s qualifying holdings is represented throughout the relevant accounting period by holdings of eligible shares. Section 285(3) of ITA defines “eligible shares” for this purpose. The new legislation will increase the eligible shares holdings requirement to 70 per cent, but will also change the definition of “eligible shares” to allow VCTs to include shares which may carry certain preferential rights to dividends

EIS & VCTs
The new legislation will exclude shares in a company from qualifying for the purposes of the EIS or VCT legislation if it is reasonable to assume that the company would be treated as an ‘enterprise in difficulty’ for the purposes of the European Commission’s Rescue and Restructuring Guidelines.

The current legislation requires that there is a qualifying trade carried on wholly or mainly in the UK. For shares issued on or after the commencement date of the legislation, the requirement will be that the company issuing the shares must simply have a permanent establishment in the UK.

Furnished Holiday Lettings
As originally announced in the 2009 Budget, the Chancellor confirmed that the furnished holiday lettings (FHL) rules would be withdrawn from 6 April 2010, (or from 1 April 2010 for companies). The legislation for this is in the Finance Bill 2010. This will mean the tax treatment of furnished holiday lettings will be the same as for other property rental businesses.