2009 Pre-Budget Report
Originally sent: December 9, 2009There are no big surprises in this year’s Pre-Budget Report. Considering the fix our economy is in, perhaps the only surprise is that it was a relatively benign report. I have read the small print carefully and cannot see any really nasty traps.
Taxation of bankers’ bonuses gained a high profile, but this measure is unlikely to impact most of our clients. Be aware, though, that if you were expecting a banker client to make a large investment following receipt of a bonus over £25,000 this bonus may now be delayed or perhaps never received.
Income tax rates and thresholds will remain unchanged next year. The chancellor suggested that as there is negative inflation this is effectively a decrease in personal tax. A lot depends, of course, on the definition of inflation. The government’s own measure, CPI, was positive in October, although the RPI was slightly negative. A true measure of inflation would anyway be specific to each individual’s circumstances. Those of us who need to drive a lot have suffered quite high inflation this year.
The Small Companies Corporation Tax Rate was expected to rise next year. Many of our business owner clients will be pleased to hear it will now remain at the current 21%.
The Inheritance Tax Nil Rate Band remains unchanged at £325,000.
In 2011 it is proposed that National Insurance rates will increase by 0.5%. At the same time the National Insurance threshold will rise. It remains to be seen, however, whether the Party in power at that time will implement the announced changes.
Perhaps the most significant measure for those of us advising wealthier clients is yet more tinkering with the already complicated rules relating to the “Special Annual Allowance Charge” on pension contributions. You will find these rules in detail in Schedule 35 of The Finance Act 2009.
In summary, these rules mean that any individual with “relevant income” of £150,000 will face a 20% tax penalty on pension contributions over £20,000 in total in the year, whether paid personally or by his or her employer. There is a host of rules defining exactly what is meant by this “excess” of contributions. I do not intend to go into this in detail here as I have already done so in an earlier e-mail. What is clear, however, is that if our clients intend making large one-off pension contributions they will be caught by these rules if they have high “relevant income”.
What has changed in the Pre-Budget Report is the definition of relevant income. This change only impacts on clients whose relevant income would previously have been defined as below £150,000 but was at least £130,000. Any such clients will now have all pension contributions added back to their income to determine whether or not it is above £150,000 and therefore subject to the new rules.
Those of us who have suggested clients have their company make a large pension contribution this year should re-visit that advice and make sure it is still appropriate. Before today’s announcement a client’s company could have made a contribution right up to the Annual Allowance of £245,000 and the client would not suffer a tax charge provided his relevant income was under £150,000. The pension contribution would not have been taken into account when working out the relevant income. Now you will need to work out the relevant income the old way, and then add the pension contribution to it if that income is £130,000 or more. Then if the total is £150,000 or more the Special Annual Allowance rules come into play. Another ongoing example of pensions simplification!
I hope you have found this newsletter useful. Don’t forget to look out for further e-mails from us which we hope may be helpful to your practice.
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
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