As announced in the June 2010 Budget, the 2011-12 personal allowance for under-65s will be increased by £1,000 to £7,475. At the same time, the basic rate limit will be reduced by £2,400 to £35,000. As a result, the higher rate threshold will be £42,475 (compared to £43,875 in 2010-11) and more people will pay income tax at the higher rate from 6 April 2011. In the 2011 Budget, the Chancellor announced that the personal allowance for under-65s would be increased again in 2012-13, by £630 to £8,105. However, at the same time the basic rate limit will be reduced by only £630 (to £34,370), so in 2012-13 the higher rate threshold will be unchanged and the increase in the personal allowance will benefit basic rate taxpayers and those higher rate taxpayers who enjoy the personal allowance (that is those with income of up to £116,210 in that year).

(See Budget report, para 1.127 and para 2.29 and TIIN.)

The ISA subscription limit will increase on an annual basis in line with the consumer prices index (CPI) from 6 April 2012 and in subsequent tax years instead of the retail prices index (RPI). The CPI for September in the preceding year will be used and the increased limit will be rounded to £120 to allow investors to make regular monthly payments. If the CPI is negative, the limit will not change.

This measure follows the government's confirmation in the June 2010 Budget that ISA subscription limits would increase in line with inflation from 6 April 2011, RPI being the appropriate index at that time (see Legal update, June 2010 Budget: key private client tax announcements: ISA limits to be linked to inflation from 6 April 2011).

For further information on subscription limits that apply to ISAs, see Practice note, Tax data: individual savings accounts.

(See Overview, para 3.9: CPI Indexation of annual ISA subscription limits and TIIN.)

The government has confirmed that it expects junior individual savings accounts (ISAs) to be available from autumn 2011, after announcing on 26 October 2010 that it would introduce the new tax-free savings account to allow parents to save for their children's future (see Practice note, Tax data: individual savings accounts: Junior ISAs).

The government has now announced a few additional details. The account will be available for all UK-resident children under the age of 18 who do not have a Child Trust Fund (CTF) account. (Eligibility for CTF accounts ended on 3 January 2011 (section 2, Child Trust Funds Act 2002 as amended by section 1, Savings Accounts and Health in Pregnancy Grant Act 2010).) A person with parental responsibility for an eligible child will be able to open and manage the new account. There will be a Sharia-compliant version. However, the government has not yet announced the annual limits on investment in cash or stocks and shares to qualify for exemption from income tax and capital gains tax.

Full details of the account will be set out in draft legislation to be published on 31 March 2011 alongside the Finance Bill 2011, which will allow regulations to be made. The draft legislation will be subject to further development and discussion with stakeholders.

(See Overview, para 2.29: Junior ISAs and TIIN.)

The government will consult on a proposed merger of income tax and National Insurance contributions (NICs).

The Chancellor explained in his budget statement that the operation of two separate systems created unnecessary costs and complexity for employers and HMRC. He did not propose to alter the contributory principle of the NICs system or to extend NICs to those over the state pension age or to other types of income currently not subject to NICs. The consultation document will be published later this year and the Chancellor anticipates that any merger would take several years to complete.

The Office of Tax Simplification (OTS) recommended in March 2011 that the government consider merging the income tax and NICs regimes in its March 2011 interim report on the simplification of the tax treatment of small businesses (see Legal update, Small business tax review: OTS interim report: Merging income tax and NICs).

(See Overview, para 3.5: Income tax and NICs reform, page 19.)

Legislation will be introduced in Finance Bill 2011 to revise the tax rules for furnished holiday lettings (FHLs) and to extend the regime on a permanent statutory basis to cover FHLs situated anywhere in the European Economic Area (EEA).

Following a public consultation on changes to the taxation of FHLs that closed on 22 October 2010, HM Treasury published its response on 9 December 2010 alongside draft legislation that was open for comment until 9 February 2011 (see Legal update, Furnished holiday lettings rules: consultation responses and draft legislation). We have been these tracking these developments in 2010 autumn statement to Finance Act 2011: legislation tracker: Furnished holiday letting rules.

The main changes contained in the draft legislation published on 9 December 2010 will be carried through into the Finance Bill 2011, and these include:

Minor amendments will be made to the draft legislation published on 9 December 2010 to ensure that the "period of grace" provisions apply from 2010/11. Where certain criteria are satisfied, these provisions allow an FHL business which meets the occupancy threshold in one year, to elect to be treated as having met the occupancy threshold in each of the following two years, even though it does not in fact meet the threshold in those years.

The announcement on FHLs states that a Tax Information and Impact Note (TIIN) for the measure is available at Annex A of the Overview of Tax Legislation and Rates. However, Annex A does not include a TIIN on the FHL measures and we are not aware that a new TIIN has been published since the one that accompanied the draft legislation of 9 December 2010 (see 2010 autumn statement to Finance Act 2011: legislation tracker: Furnished holiday letting rules).

(See Overview, para 2.8: Furnished holiday lettings.)

For the tax year 2011-12, the annual exempt amount will increase to £10,600, in line with changes in the retail price index (RPI) for the 12 months to September 2010 in accordance with section 3 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). As required by current legislation, the new exempt amount will be introduced by Treasury order.

It was announced in the Budget that legislation will be introduced in the Finance Bill 2012 to amend section 3 of TCGA 1992 to refer to the Consumer Price Index (CPI) in place of the RPI. The change will have effect for the tax year 2012-13 and, from 2013-14 onwards the increase will be automatic, with no need for a Treasury order, although the government retains the right to override the CPI index figure. The change from RPI to CPI is in line with similar indexation changes to personal allowances and national insurance contributions. For background on capital gains tax, see Practice note, Tax on chargeable gains: general principles.

(See Overview, para 1.8, page 2: Capital Gains Tax annual exempt amount; para 3.11, page 21 and TIIN.)

The Chancellor announced in the 2011 Budget that, with effect from 6 April 2011, the lifetime limit for entrepreneurs' relief will increase from £5 million to £10 million. The relief is available to individuals and trustees who dispose of qualifying business assets and shares and meet certain other conditions (see Practice note, Entrepreneurs' relief). This means that the first £10 million of qualifying gains will be taxed at a rate of 10%, with gains in excess of that figure being taxed at the individual's marginal rate. The increased limit will apply in relation to disposals on or after 6 April 2011. To the extent that any gains realised by the taxpayer before that date exceeded the lifetime limit of entrepreneurs' relief in force at the date of disposal, CGT will remain payable at the full rate of 18%/28% on the excess, but only the £5 million of relief claimed will be set against the increased limit for future qualifying disposals. There are no other changes to entrepreneurs' relief in this Budget.

(See Overview, para 1.7: Entrepreneurs' relief, page 2 and TIIN page A9 and TIIN.)

The government will consult before summer 2011 on the detail of a new proposal to apply a reduced rate of inheritance tax (IHT) to the estates of deceased individuals who leave 10% or more of their net estate to charity.

At present, an IHT rate of 40% is applied to the balance of an individual's death estate after deduction of any available exemptions or reliefs and the nil rate band (see Practice note, Inheritance tax: overview: The rate of tax).

In a proposal aimed at stimulating charitable giving in line with the government's Big Society agenda, the IHT rate will be reduced from 40% to 36% where the deceased has left 10% or more of his net estate (after deduction of exemptions, reliefs and the nil rate band) to charity. The new rate would apply to the estates of individuals dying on or after 6 April 2012.

(See Overview, para 3.40: Inheritance tax - reduced rate.)

The government will consult on a proposal to introduce a tax reduction for taxpayers who give a work of art or historical object of national importance to the State. The consultation will take place over the summer of 2011.

(See Overview, para 3.38: Gifts of art.)

From 2015-16, the consumer prices index (CPI) will be used as the "default indexation assumption" for the inheritance tax nil rate band. It is not clear whether this means that the nil rate band will rise in line with the CPI each year, or whether the government will make a decision each year about whether it should rise by this amount. No draft legislation has been published, and the measure is listed as one of those to be included in future legislation rather than in Finance Bill 2011. We will report when more information is available.

The nil rate band has been frozen at £325,000 for the tax years 2009-10 to 2014-15 inclusive (see Practice note, Tax data: inheritance tax: Nil rate band).

(See Overview, para 3.13: Inheritance tax allowance.)

Several changes which had been previously announced were also confirmed in the Budget. These include:

In the March 2010 Budget, the former Labour government announced the introduction of SDLT relief for first-time buyers of residential property where the consideration does not exceed £250,000. (See Legal update, March 2010 Budget: key business tax announcements: SDLT and residential property: nil rate threshold doubled for first-time buyers.)

In the June 2010 Budget, the government said that it would review first-time buyer relief taking into account its impact on affordability and value for money. (See June 2010 Budget: property implications: First-time buyer "relief".)

The government has stated in the 2011 Budget that it will announce the outcome of this review in the autumn

(See Budget Report, para 2.156: SDLT: relief for first-time buyers, page 65).

In response to the review of tax reliefs by the Office of Tax Simplification (OTS), the government has published two lists of tax reliefs that it will abolish. The first list will be abolished in Finance Bill 2011 and the second list next year or later. The reliefs to be abolished have been chosen because they have no further use, are poorly targeted or are disproportionately burdensome to administer. None are of special concern to private client practitioners.

The reliefs to be abolished in Finance Bill 2011 include the following reliefs relevant to charities:

For information about why the OTS recommended that these reliefs should be abolished, see Legal update, Final report on tax reliefs review: private client exemptions and reliefs: Reliefs to be abolished.

The reliefs to be abolished next year, after a period of consultation, include income tax relief for payments up to £100 by an individual for the benefit of his spouse or children (section 273, Income and Corporation Taxes Act 1988 (ICTA 1988), section 609, Income Tax (Earnings and Pensions) Act 2003 and section 459, Income tax Act 2007).

Reliefs where the date of abolition will be decided after consultation, to provide for a notice period, include:

For information about other reliefs to be abolished, see PLC Tax, Legal update, 2011 Budget: key business tax announcements: Abolition of tax reliefs following OTS report.

(See Overview, para 1.45: OTS review of reliefs and government response and para 3.71: and TIINs, Charities: Transitional Relief on Distributions: Repeal of Redundant Relief, Millennium Gift Aid: Repeal of Redundant Relief and Payroll Giving supplement: Repeal of Redundant Relief.)

For measures that will be introduced into the Finance Bill 2011 with no changes to the consultation drafts or the TIINs published in December 2010, see PLC Tax, Legal update, 2011 Budget: key business tax announcements.

(See Overview, para 2.4: Measures unchanged following consultation.)

The government will consult in June 2011 on the detail of three specific proposals for reform of the remittance basis of taxation applying to non-domiciled individuals, with the aim of implementing the reforms from April 2012. The government confirmed that there would be no other substantive changes to these rules for the remainder of this Parliament.

The proposed reforms aim to:

(See Overview, para 3.7: Review of non-domicile taxation.)

The government will consult on the introduction of a statutory definition of residence as it considers the current rules determining tax residence for individuals are unclear and complicated. The government will issue a consultation document in June 2011 and intends to implement the provision from April 2012. For information on the current rules on residence and for links to further information on the UK tax implications of the concepts of residence, ordinary residence and domicile, see Practice note, Residence and ordinary residence: definitions for UK tax purposes.

(See Overview, para 3.8: Statutory residence test.)

The government has announced that it will be drawing up measures to combat the avoidance of UK tax using double taxation treaties (www.practicallaw.com/8-107-6151) (DTTs). The measures will target both UK residents (individuals, trustees and companies) who use tax avoidance schemes and overseas residents who claim benefits to which they are not entitled under the UK's DTTs. The draft legislation will be released for comment in the autumn of 2011 and will be included in the Finance Bill 2012.

(See Overview, para 3.56: Tax treaties anti-avoidance.)

See IHT rate reduction for charitable testators.

The limit on the aggregate value of benefits that individuals and companies may receive as a result of making donations to a charity (or a Community Amateur Sports Club (CASC)) of more than £10,000 in a tax year will increase from £500 to £2,500. The existing rule that the value of benefits that individuals and companies may receive must not exceed 5% of the amount of the donation will continue to apply.

For these donations to qualify for Gift Aid, any benefits that the donor (or any person connected with the donor) receives from the charity as a consequence of making them must not exceed certain limits (known as the relevant value and the aggregate value tests). For details of the donor benefit rules and the current limits, see Practice note, Gift Aid: benefits in exchange for donations.

Legislation to amend the current limit will be introduced in Finance Act 2011 and will affect benefits received as a consequence of donations made on or after 6 April 2011 by individual donors, and for donations made in accounting periods ending on or after 1 April 2011 by corporate donors.

The amendment will enable charities to thank large donors in a more generous way without jeopardising eligibility for Gift Aid on the donation and is part of a package of measures designed to help boost charitable giving.

HMRC has also identified various areas of confusion or misunderstanding in relation to Gift Aid benefits and will publish revised guidance in April 2011.

(See Overview, para 1.20: Gift Aid donor benefit limits and TIIN. )

From April 2013 charities (and CASCs) that receive donations of £10 or less will be able to apply for a "Gift Aid style" repayment without obtaining Gift Aid declarations for such donations. The total amount of such small donations on which the repayment can be claimed by a charity will be capped at £5,000 a year.

In order to take advantage of the new scheme a charity must have:

The government will carry out a consultation on the new scheme during summer 2011.

(See Overview, para 3.35: Gift aid: records for small donations.)

In 2012-13, HMRC will introduce a new online filing system allowing charities to register for Gift Aid and to make Gift Aid claims. HMRC will publish four new "intelligent" forms for charities to use. HMRC and the charity sector have worked together to develop the forms and they will continue to collaborate in developing the new online system and a supporting electronic gift aid database for Gift Aid declarations.

This follows HM Treasury's response to the Gift Aid Forum report in which it indicated that it would give further consideration to proposals to develop an online filing system (see 2010 autumn statement to Finance Act 2011: legislation tracker: Gift aid review).

(See Overview, para 3.36: Gift aid: online filing.)

Draft legislation to introduce the tainted charity donation rules in the Finance Bill 2011 was published by HMRC and HM Treasury on 9 December 2010, with the consultation period closing on 9 February 2011.

Following responses received during the consultation period, HMRC says that the draft legislation has been amended with the intention of making it "clearer and better targeted".

In particular, HMRC states that the legislation now:

The amended wording of the tainted donation rules has not been published in advance of the Finance Bill 2011 and it remains to be seen whether HMRC has amended the legislation to address practitioners' concerns.

To follow the progress of the tainted charity donation rules, see 2010 autumn statement to Finance Act 2011: legislation tracker: Tainted charity donations.

(See Overview, para 2.19: Changes to the substantial donor rules.)

The Self Assessment (SA) Donate scheme will be withdrawn because it has not been well used, it is not cost effective and it is vulnerable to fraud without extensive upgrading.

SA Donate is a scheme introduced in 2005 enabling an SA taxpayer who is due a repayment of tax from HMRC to redirect that repayment straight to a charity of his choice. The rules are currently set out in section 429 of the Income Tax Act 2007 (ITA 2007).

Legislation will be introduced in Finance Bill 2012 to repeal section 429 of ITA 2007. The SA Donate scheme will be withdrawn in relation to repayments of tax for:

(See Overview, para 3.39: SA Donate and TIIN.)

HMRC will publish draft legislation in autumn 2011 to put an existing extra-statutory concession (ESC) for charities on a statutory footing. HMRC states that the ESC concerned allows charitable companies and certain charitable trusts to claim repayments of income tax outside a tax return (in-year claims). However, we have not been able to identify the ESC concerned in HMRC's latest list of current ESCs (see HMRC Legal update, HMRC publishes guide to remaining ESCs) or in the current review of ESCs (see 2010 autumn statement to Finance Act 2011: legislation tracker: Extra-statutory concessions review). We will report when more information is published.

(See Overview, para 3.37: In-year repayments of income tax to charities.)

The government has announced that it will continue to consult on the implementation of the EU cost-sharing exemption, which some other member states have brought in (see Legal update, March 2010 Budget: key business tax announcements). The absence of the exemption impairs organisations such as charities, housing associations and others in the not-for-profit sector from forming groups to share expenses, such as staff costs, as the re-charge of those costs creates irrecoverable VAT for those organisations.

(See Overview, para 3.53: VAT cost-sharing exemption.)

See Tax reliefs to be abolished.

Legislation will be introduced in Finance Bill 2011 to reduce the main rate of corporation tax (CT) to 26% for the financial year commencing 1 April 2011 and then to 25% for the year commencing 1 April 2012. The main rate applies to companies and groups whose annual profits exceed £1.5 million. These changes represent an additional 1% reduction on top of the four annual reductions announced in the June Budget 2010 (see Legal update, June 2010 Budget: key business tax announcements: Corporation tax rates reduced from 2011-12), which will take the main rate of CT to 24% for the year beginning April 2013 and 23% for the year beginning April 2014. The CT rate for companies with ring-fenced profits from oil extraction in the UK and UK continental shelf (ring-fenced profits) will remain at 30%.

As announced in the June 2010 Budget (see Legal update, June 2010 Budget: key business tax announcements: Corporation tax rates reduced from 2011-12), Finance Bill 2011 will also contain legislation reducing the small companies rate of CT to 20% (from 21%) for the year commencing 1 April 2011. This will apply to companies and groups whose annual profits do not exceed £300,000.

(See Overview, para 1.9: Corporation tax rate, Appendix B: Business and financial services and TIIN.)

The government has confirmed that it will be looking at improving tax administration for small businesses as part of its response to the OTS reviews and recommendations. Announcements can be expected in the 2012 Budget. For details of the OTS interim report published in March 2011, see Legal update, Small business tax review: OTS interim report.

(See Overview, para 3.67: Response to OTS review of small business tax.)

In December 2010, as part of its new approach to tax policy making, the government launched its new "strategic" approach to tackling tax avoidance and promised, at Budget 2011, to set out a programme of work to review areas that have been subject to repeated avoidance attempts (see, Legal update, Tax policy making: response to consultation and draft framework and protocol: Response to June 2010 consultation).

The joint HMRC and HM Treasury report on tackling tax avoidance sets out HMRC's new anti-avoidance strategy and details the first two areas of tax legislation that are to be subject to a complete review.

HMRC's new anti-avoidance strategy involves four legislative strands:

(See Overview, para 3.54: Avoidance - high risk areas and para 3.55: Listed tax avoidance schemes and HMRC and HM Treasury: Tackling tax avoidance.)

The government has published the final text of its protocol on announcements outside the Budget. A number of changes have been made to the draft protocol that was published for consultation on 9 December 2010 (see, Legal update, Tax policy making: response to consultation and draft framework and protocol). The changes:

It is noted in the joint HMRC and HM Treasury report on tackling tax avoidance, that where draft clauses for anti-avoidance measures are published for consultation, the protocol is not intended to prevent changes from taking effect from the date the draft clauses are published.

(See Overview, para 3.60: Tax Policy Making (draft protocol on announcements outside fiscal events), page 30 and Tackling tax avoidance, page 17: Protocol on unscheduled announcement of changes to tax law.)

The government has announced that it will shortly publish the final version of its Tax Consultation Framework together with a summary of responses to the consultation on the draft framework. For details of the consultation, see Legal update, Tax policy making: response to consultation and draft framework and protocol.

(See Overview, para 3.64: Tax consultation framework.)

The government has confirmed that legislation will be introduced in the Finance Bill 2011 that gives HMRC new powers to collect data from a broad range of third parties (for the draft legislation, see Legal update, HMRC's data gathering powers: draft Finance Bill 2011 legislation. One change to the draft legislation is announced, namely that a new safeguard has been added, which ensures that a data-handler need only provide data if it is in his possession or power. The government has also confirmed that a response to the consultation will be published alongside the Finance Bill on 31 March 2011.

(See Overview, para 2.25: Data-gathering.)

The government will consult on the range of penalties that HMRC can impose for failure to comply with regulatory obligations across the tax and duty regimes. It will publish a consultation document to consider options for simplification in June 2011.

(See Overview, para 3.62: Simplification of regulatory penalties.)

The government will consult on its previous proposals (including draft legislation) allowing HMRC, with appropriate safeguards, to obtain the working papers of dishonest tax agents, penalise them and publish their details on HMRC's website (see Legal update, Draft legislation on deliberate wrongdoing by tax agents published). The government will continue to informally consult stakeholders and will issue a consultation document and revised draft legislation in July 2011.

(See Overview, para 3.63: Dishonest tax agents, page 31.)

The government has announced that it will issue a consultation in the autumn of 2011 to consider improvements to administration and transparency of the personal tax system for individuals. To assist individuals in calculating their income tax and NICs liabilities, HMRC will also develop online and downloadable tax and NICs calculators by April 2012.

(See Overview, para 3.65: Tax transparency for individuals, page 31.)