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December 2010
Finance Bill 2011
For the first time, the government has published next year’s Finance Bill in draft form, giving people time to comment on the proposals.
The chancellor has stated that the reason for doing this is to provide a more predictable and stable tax system, and to allow for greater scrutiny of the changes proposed.
The Finance Bill 2011 will also legislate for the annual changes in taxation rates that have already been announced.
Separate consultations have been launched for some measures where comments are specifically sought, although comments will be accepted on any of the proposals.
These are some of the more significant proposed changes:
Pensions
Obligation to purchase an annuity by 75 will be abolished, effective from April 2011. This should enable an individual with a lifetime pension income of at least £20,000 a year to draw down pension funds without any cap.
As previously announced, the annual allowance for pension contributions will be reduced from £255,000 to £50,000 from April 2011 and the lifetime allowance to £1.5million from April 2012.
Income Tax
Rates will remain at 20, 40 and 50 per cent, with the Personal Allowance set to increase to £7,475 for 2011/12, and the basic rate limit to be reduced to £35,000 for 2011/12.
Corporation Tax
Next stage in the series of ongoing reductions will be confirmed, taking the main rate from 27 per cent to 26 per cent from April 2012 and the small profits rate from 21 per cent to 20 per cent.
Associated companies
Rules on ‘associated companies’ – designed to prevent misuse of the small companies corporation tax rate – are being relaxed to only catch cases of ‘substantial commercial interdependence’.
Taxation of foreign branches
Further exemptions from the Controlled Foreign Company (CFC) regime are proposed, as well as a permanent election for all of its branches to be exempt from UK tax on the profits of its overseas branches.
Controlled foreign companies
There are various proposals for exemptions for companies for certain transactions with CFCs, with little connection to the UK.
Corporate capital gains
Following consultation on simplification of capital gains rules for groups of companies, it is proposed that where a company leaves a group as a result of a disposal of its shares, a degrouping charge will be taxed as additional proceeds for the disposal.
Corporate tax anti-avoidance rules
Study into perceived abuse set to be completed by 31 October 2011.
Disguised remuneration
Legislation to be introduced to ensure income tax and National Insurance are not avoided through the use of trusts or other similar vehicles.
Bank Levy
Levy will be 0.05 per cent from April 2011, rather than 0.04 per cent as previously announced, rising to 0.075 per cent in 2012.
Childcare
The level of tax relief on childcare vouchers and directly-provided childcare will be made the same for all taxpayers.
The obligation on employers to make childcare schemes available to all employees will be removed
Furnished Holiday Lettings Relief
Minimum lettings period to increase to 210 days a year, of which 105 are actually let, but relief will in future be available on homes throughout the European Economic Area.
HMRC powers
In April 2011, the government will introduce legislation to allow HMRC to obtain security from employers where PAYE is seriously at risk.
Comments on the draft legislation can be submitted until 9 February 2011. For more information see www.hm-treasury.gov.uk.
