Darling Announces New 50% Rate Of UK Income Tax

by Robert Lee, Tax-News.com, London

23 April 2009

In a budget which treads a fine line between raising enough additional revenue to plug a growing fiscal deficit on the one hand, and nurturing the fragile UK economy on the other, Chancellor of the Exchequer Alistair Darling has announced a new top rate of tax for higher earners, although businesses are likely to be disappointed at the paucity of measures to support struggling companies.

Among the more significant proposals announced in the House of Commons by Darling in the 2009 budget:

Individual tax measures

• from 2010-11, there will be an additional higher rate of 50% for taxable income above GBP150,000;
• from 2010-11 the basic personal allowance for income tax will be gradually reduced to nil for individuals with “adjusted net incomes” above GBP100,000; and
• from 2010-11 there will be increases to the trust rate and dividend trust rate to match those for income tax.

These changes replace the announcements made at the 2008 pre-budget report, when Darling announced a new top rate of 45% to apply from April 2010. The reduction of personal allowances affects those with incomes over GBP100,000 and the new tax rate affects those with incomes over GBP150,000.

Other personal taxation measures

• non-payable tax credit on dividends from foreign companies will be extended to certain large shareholdings in foreign companies;
• losses from furnished holiday accommodation will not be able to be set against other personal income from 2011/12 (although in the meantime it will be possible to set losses from furnished holiday accommodation situated in the European Economic Area against other personal income).
• a new campaign to help low income pensioners claim any tax back which they have incorrectly paid.
• ISA (tax-free savings accounts) limits for people aged 50 and over will be raised to GBP10,200, of which GBP5,100 can be held in cash; ISA limits to be raised for all investors by the same amount from 6 April 2010.
• extension of stamp duty land tax 'holiday', which will exempt any acquisitions of residential property of not more than GBP175,000 between September 3, 2008 and December 31, 2009 inclusive.

Business tax measures

• loss relief measures allowing businesses to carry back losses for three years, announced in the 2008 pre-budget report, extended for an additional year;
• introduction of the long-awaited foreign profits tax reform package in the Finance Bill 2009 consisting of the following four elements:
  • dividends and other distributions received from foreign companies will largely be exempt from corporation tax and UK distributions will be exempt to the same extent;
  • finance expense payable by UK members of a group of companies will be subject to a cap equal to the consolidated gross finance expense of that group;
  • the CFC (superior and non-local) holding company exemptions and Acceptable Distribution Policy exemption will be removed; and
  • the Treasury Consents rules (that requires approval from HM Treasury before certain transactions are undertaken) will be repealed and replaced by a post-transaction information-reporting requirement.
• a new temporary 40% first-year allowance for expenditure on general plant and machinery will apply to qualifying spending incurred in the 12 month period beginning on April 1, 2009 for corporation tax, and on April 6, 2009 for income tax.

Compliance measures

• a New Disclosure Opportunity (NDO) for UK residents with unpaid tax connected to an offshore account. The NDO will run from the autumn 2009 for a limited period to give the offshore account holders "one final opportunity" to disclose, and put their affairs in order;
• tax avoidance disclosure regime hallmarks to be revised and extended;
• a new tax agent consultation as part of HMRC’s work to modernise its powers, deterrents and the accompanying safeguards;
• close monitoring of serious tax defaulters (those who incur a penalty for deliberate evasion in respect of tax of GBP5,000 or more)
• serious tax defaulters to be named and shamed on HMRC's website
• tougher policing of living accommodation benefit charge

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