The Chancellor’s Budget Speech on June 22, 2010, included announcements on increases in value added tax and capital gains tax rates, the introduction of a levy on UK banking operations, and consultation to commence later this year on a wider reform of the UK’s corporation tax system.
Set out below is a list of some of the headline tax measures:
Capital Gains Tax
- CGT rate increased from 18% to 28% for higher rate and additional rate income tax payers, with effect from June 23, 2010
- Gains qualifying for entrepreneur’s relief will continue to be taxed at an effective CGT rate of 10% but the lifetime limit of qualifying gains will be raised from £2m to £5m
- Annual exempt amount will remain at £10,100 for 2010/11
Corporation Tax
- Main corporation tax rate to be reduced from 28% to 27% for the year commencing April 2011 and thereafter by a further 1% point each year to 24% by April 2014
- Main rate pool plant and machinery capital allowances reduced from 20% to 18% for periods ending on or after April 2012
- Autumn programme for corporation tax reform, based on principles of a lower corporate tax rate, a broader tax base and a more territorial approach, with the stated aim of making the system more competitive, simpler and more stable
- Consultation to continue on reform of CFC and overseas branch rules. Interim changes expected Spring 2011, but wider CFC reform delayed until 2012
Bank Levy
- Levy on balance sheets of UK banks and building societies and UK branches/subsidiaries of overseas banks, with effect from January 1, 2011
- Proposed that levy will be 0.07% (with a lower rate of 0.04% in 2011) applying to short- and long-term liabilities exceeding, in aggregate, £20bn, with exceptions for Tier 1 capital, insured retail deposits and certain other liabilities
- Consultation and draft legislation expected later this year
Anti-avoidance
- Targeted measures to counter specific arrangements, including derecognised corporate debt and derivatives, and tax credits derived from authorised investment fund distributions, in addition to continued consultation on group mismatches involving financial instruments
- As part of wider tax reform, there will also be formal consultation on whether to enact a general anti-avoidance rule
Capital Distributions
- As announced in the March Budget 2010, corporation tax exemption for income distributions will be extended with retrospective effect to cover certain distributions of a capital nature
- Clarification that distributions from reserves arising from capital reductions will be “distributions” within the corporation tax rules
- Clarification relating to distributions out of capital reduction reserves to have effect for income tax purposes where the distributing company is UK resident, with effect for distributions made on or after June 22, 2010
Value Added Tax
- VAT rate increased from 17.5% to 20%, with effect for supplies and imports/acquisitions made on or after January 4, 2011
- Anti-forestalling legislation will also be introduced
Insurance Premium Tax
- Standard rate of IPT increased from 5% to 6% and higher rate of IPT increased from 17.5% to 20%, with effect for premiums received or written on or after January 4, 2011 (subject to accounting treatment)
Pensions
- Government considering replacing high-income excess relief charge with a reduced annual allowance of £30,000 to £45,000, with effect from April 2011
Non-domiciliaries
- Taxation of non-UK domiciliaries will come under further review