The Chancellor has announced that for gains arising on or after 23 June 2010, the rate of CGT will increase to 28% for higher and additional rate taxpayers, trustees and personal representatives. Basic rate taxpayers will continue to be liable at 18%. The new rate will apply equally to any deferred gains that come into charge on or after that date. For CGT purposes, the date of disposal of an asset is the date on which a contract for sale becomes unconditional The annual exempt amount (AEA) will remain at £10,100 for the tax year 2010-11.

The liability to CGT will be determined by aggregating capital gains realised between 23 June 2010 and 5 April 2011 (net of reliefs and allowances) with taxable income. Any excess over £37,400 will be taxable at 28%. Because all gains realised from 6 April to 22 June 2010 will be taxed at the flat rate of 18%, they will not be taken into account when calculating total income and gains for the purposes of determining the extent (if any) to which the 28% rate will apply to post-22 June 2010 gains. In addition, HMRC has indicated that a taxpayer will be free to allocate the AEA and any other reliefs available (such as losses) in the manner that gives the lowest overall tax liability for the year (in other words, the reliefs can be set against the later gains in preference to the pre-23 June 2010 gains).

The re-instatement of the link between income levels and rates of CGT, which was abolished by the Finance Act 2008, may provide a significant (although probably short-lived) incentive for those with income below £130,000 to take advantage of higher rate pension relief while it is still available to reduce their liability to CGT for 2010-11. The Chancellor will be reviewing the rate of CGT in the March 2011 Budget and further rises cannot be ruled out.

To a limited extent, a planning opportunity also exists for the directors of owner-managed companies, who are able to control the amount of income that they receive in a given year. If such directors are planning to realise capital gains (for example, on the sale of a second home or an investment portfolio), they may reduce their income levels for the year of the disposal in order to pay CGT at the lower rate.

Also with effect from 23 June 2010, the lifetime limit for entrepreneurs' relief will rise from £2 million to £5 million. Currently, entrepreneurs' relief achieves an effective rate of tax of 10% on the first £2 million of qualifying gain by reducing the gain by 4/9 and taxing the balance at 18%. However, as a consequence of the introduction of the 28% rate of CGT, the method of giving the relief will be reformulated such that a tax rate of 10% will apply to the first £5 million of qualifying gain.

The increased limit will apply in relation to disposals on or after 23 June 2010. To the extent that any gains realised by the taxpayer before that date exceed the current £2 million lifetime limit of entrepreneurs' relief, CGT will remain payable at the full rate of 18% on the excess, but only the £2 million of relief claimed will be set against the increased limit for future qualifying disposals.

HMRC has helpfully released a set of questions and answers on the application of the new rates and limits. Unsurprisingly, non-domiciled individuals who elect to pay £30,000 in order to be taxed on the remittance basis will be deemed to have used up their lower rate band and will, therefore, be liable for tax at 28% on gains.

For more information about CGT rates and allowances, see Practice note, Tax data: capital gains tax.

(See June 2010 Budget - BN 20 - Capital Gains Tax - Rates and Entrepreneurs' Relief and HMRC - Capital Gains Tax - Rates and Entrepreneurs' Relief - Questions and Answers.)

The government announced that it will not proceed with the proposal to withdraw the furnished holiday lettings (FHL) rules, first announced in the 2009 Budget and confirmed in the March 2010 Budget (see 2009 Pre-Budget Report to Finance Act 2010: legislation tracker: Furnished holiday letting rules). The existing rules will continue to apply to holiday lettings situated in the UK or elsewhere in the European Economic Area during the tax year 2010-11.

The government will consult over the summer about a proposal to change the taxation of furnished holiday lettings from 6 April 2011 (and from 1 April 2011 for companies). The previous Labour administration proposed the repeal of the FHL rules as they may not be compliant with EU law. The government states that its proposal will ensure that the rules comply with EU law by changing the eligibility thresholds and restricting the use of loss reliefs.

Any changes to the FHL rules will take effect from April 2011.

(SeeJune 2010 Budget - Budget policy decisions (paragraph 2.85) and HM Revenue & Customs, Furnished Holiday Lettings, Questions and Answers, 22 June 2010.)

As announced in the 2009 Pre-Budget Report (see 2009 Pre-Budget Report: key private client tax announcements: PPR preserved for adult placement carers), the rules for principal private residence relief (PPR) from capital gains tax (CGT) will be amended to ensure that the relief is preserved where a carer provides accommodation to a vulnerable adult under an Adult Placement Carers (APC) scheme.

PPR provides relief from CGT when an individual disposes of his dwelling-house (or an interest in a dwelling-house) that has been his only or main residence at some point during his ownership (see Practice note, Capital gains tax: principal private residence relief: overview). PPR is not available on any part of a dwelling-house that is used exclusively for the purposes of a trade, business, profession or vocation (sections 224(1) and (2), Taxation of Chargeable Gains Act 1992 (TCGA 1992)). Consequently, where a person caring for an adult under a local authority placement scheme sets aside part of his house for the adult's use, section 224 of TCGA 1992 may prevent PPR being available in full when the carer disposes of his house. The proposed amendment will ensure that occupation of part of the carer's house by an adult in care will not restrict the relief.

The amended legislation, to be introduced as soon as possible after the summer recess (and not in Finance Bill 2010 as announced in the 2009 Pre-Budget Report), will have effect for disposals on or after 9 December 2009.

(See June 2010 Budget - BN28 - capital gains tax: private residence relief and adult placement carers and Capital gains tax: private residence relief: adult placement carers: draft legislation and explanatory note.)

The 50% additional income tax rate will remain in place for the time being. The rate took effect on 6 April 2010 and applies to income over £150,000. The Conservatives have previously said that they do not regard the rate as a permanent feature of the tax system, but will not abolish it while asking public sector workers to accept a pay freeze (see Legal update, General election 2010: implications for private client practice: Conservative party).

For more information about income tax rates and allowances, see Practice note, Tax data: income tax.

(See June 2010 Budget - Budget Report (paragraph 1.97).)

The government has confirmed that the limits on tax-free investment in individual savings accounts will increase in line with the retail prices index (RPI) from 6 April 2011. If the RPI is negative, the limits will remain unchanged. The previous government announced this measure in the March 2010 Budget (see Legal update, March 2010 Budget: key private client tax announcements: ISA limits to be linked to inflation).

The new announcement contains three minor changes from the previous announcement:

(See June 2010 Budget - BN21 - Indexing Individual Savings Account limits from 2011.)

The inheritance tax (IHT) nil rate band will remain frozen at £325,000 until 5 April 2015. This measure was enacted by the previous government (see 2009 Pre-Budget Report to Finance Act 2010: legislation tracker: Inheritance tax: nil rate band).

For more information about IHT rates and allowances, see Practice note, Tax data: inheritance tax.

(See June 2010 Budget - Budget policy decisions (paragraph 2.126).)

As announced in the March 2010 Budget (see March 2010 Budget: key private client tax announcements: Disclosure regime to include inheritance tax), the Government has confirmed that it will consult on bringing inheritance tax (IHT) as it applies to trusts within the "Disclosure of Tax Avoidance Schemes" regime.

(See June 2010 Budget - Budget policy decisions (paragraph 2.115).)

As part of its consultation on tax policy (see Tax policy making: a new approach), the Government is considering a General Anti-Avoidance Rule (GAAR) to prevent frequent changes in the tax legislation in order to close loopholes. HMRC will engage informally with interested parties over the summer to assess whether there is a case for developing a UK GAAR.

(See June 2010 Budget - Budget report (paragraph 1.126).)

Following intense lobbying from employer organisations and the pensions industry, the government has resolved to overhaul the previous government's plans for restricting pensions tax relief for high earners, which were due to be implemented from 6 April 2011 (paragraph 1.118, Budget report).

Rejecting the previous government's approach as too complex, the government will investigate whether equivalent revenue (estimated at £3 billion in 2011/12) can be raised through the alternative means of significantly reducing the annual allowance, which is set at £255,000 in 2010/11. Preliminary analysis apparently suggests that an annual allowance in the region of £30,000 to £45,000 may achieve this aim.

The government recognises that a number of technical points will need to be reflected in the design of any alternative method. Particular areas that the government will consider in consultation with interested parties are:

The measures enacted in the Finance Act 2010 putting in place the framework for the high income excess relief charge will be repealed in regulations enacted under the forthcoming Finance Bill. The repeal will only take effect once the government has decided on a replacement approach. For background about the previous government's plans, see Practice note, Restricting pensions tax relief: implementing the restriction.

In the meantime, there will be no changes to the anti-forestalling regime, though the government says it will continue to monitor the regime and take action to protect revenues if necessary. For the details of the anti-forestalling regime, see Practice note, Restricting pensions tax relief: anti-forestalling measures.

(See June 2010 Budget - Budget report (paragraph 1.118), June 2010 Budget - Budget policy decisions (paragraph 2.27) and HM Treasury: Restricting Pensions Tax Relief.)

In line with the coalition agreement published on 20 May 2010, the existing annuitisation rules, effectively requiring members of registered pension schemes to buy an annuity by age 75 will be abolished from 2011/12 (paragraph 1.117, Budget report).

In the meantime, the requirement will be deferred for any members who reach age 75 on or after 22 June 2010. In their case, they will not have to buy an annuity until they reach age 77. The Finance Bill will contain measures amending the tax rules contained in the Finance Act 2004 and the related inheritance tax rules will also be modified.

A full consultation on the government's proposals for 2011/12 onwards will follow in due course.

(See June 2010 Budget - BN22 - Transitional measure deferring the effective requirement to buy a pension annuity to age 77, June 2010 Budget - Budget report (paragraph 1.117) and HM Treasury: Restricting Pensions Tax Relief.)

With effect from 6 April 2011, the personal allowance for those aged under 65 will increase by £1,000 to £7,475. However, legislation will be introduced to ensure that higher rate taxpayers do not benefit from the increase. This will be achieved by lowering the threshold above which higher rate tax is paid. The exact figure will be announced in the autumn, as it will depend on the movement in the retail price index (RPI) in the year to September. The government has also confirmed that the higher rate lower threshold will be frozen in 2012-13.

For NIC, the increase of £570 in the primary (employee) threshold, which was announced in the March 2010 Budget will take effect from 6 April 2011 to coincide with the increase of 1% in employee contributions (from 11% to 12%) and in employer contributions (from 12.8% to 13.8%). Legislation will be introduced in a forthcoming Finance Bill to increase the employers' threshold by £21 above the RPI. At the same time, the upper earnings limit will be reduced to align it with the higher rate threshold.

(See June 2010 Budget - BN 01 - The personal allowance, basic rate limit and national insurance thresholds for 2011-12 and June 2010 Budget - Budget policy decisions (paragraph 2.22).)

The June 2010 Budget has confirmed that a new SDLT rate of 5% for purchases of residential property where the consideration exceeds £1 million, will take effect on 6 April 2011.

The new rate was announced in the March 2010 Budget. The previous highest rate was 4% for purchases where the consideration exceeds £500,000. All other SDLT rates and thresholds remain unchanged.

For further information, see:

(See June 2010 Budget - Budget policy decisions (paragraph 2.85).)

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.

In the June 2010 Budget, the new government said that it will review first-time buyer relief taking into account its impact on affordability and value for money.

The former Labour government stated that the relief would be available where the effective date falls on or after 25 March 2010 and before 25 March 2012. Where the relief is available, the nil rate threshold is effectively doubled.

The existing nil rate of SDLT on residential purchases not exceeding £125,000 continues to apply as before (which means that it is not limited to first-time buyers).

For more information, see:

(See June 2010 Budget - Budget report (paragraph 1.111).)

In the June 2010 Budget, the government confirmed that legislation will be passed after the summer recess, to amend the SDLT mistake relief rules.

The proposed legislation, to introduce a single statutory regime to deal with the recovery of overpaid SDLT, was announced in the March 2010 Budget and will take effect from 1 April 2011.

Paragraph 34 of Schedule 10 to the FA 2003 provides relief where a person has overpaid SDLT and both the following conditions apply:

No SDLT mistake relief can be claimed if the land transaction return was submitted in accordance with the practice at the time or where the mistake was governed by another statutory claim (paragraph 34 of Schedule 10 to the FA 2003).

The amendment will remove the conditions for claiming relief, ensuring that there is a means of reclaiming overpaid SDLT where there is no other statutory route by which to do so.

Claims submitted prior to 1 April 2011 must be submitted within six years of the effective date of the transaction. From 1 April 2011, the time limit will be four years.

(See June 2010 Budget - BN35 - Relief for overpayments of stamp duty land tax and petroleum revenue tax.)

In the June 2010 Budget, the government announced that it will examine whether the SDLT rules for high value property transactions need to be changed to combat tax avoidance in this area.

This forms part of an overall drive by the government, to tackle tax anti-avoidance measures in general.

(See June 2010 Budget - PN03 - Tackling tax avoidance and June 2010 Budget - Budget policy decisions (paragraph 2.116) .)

The government has confirmed that it will introduce legislation to establish a new income tax relief for shared lives carers (that is, those who share their homes and family life with individuals, including adults, placed with them under the shared lives scheme). The relief, which will be known as "qualifying care relief", will be introduced as soon as possible after the summer recess. It will allow shared lives carers to claim a tax free allowance and will available from 2010-11.

The relief is broadly the same as that announced in the 2009 Pre-Budget Report (see 2009 Pre-Budget Report: key private client tax announcements: Measures to assist shared lives carers). However, it will allow shared lives carers to claim the same income tax relief as that available to foster carers rather than that similar to the foster care relief, as reported in the 2009 Pre-Budget Report. There is also an additional measure which provides that shared lives carers can choose between the existing simplified arrangements for adult placement carers and the new tax free allowance for the tax year 2010-2011 only. The simplified arrangements will be withdrawn from 2011-12.

(See June 2010 Budget - BN27 - Income tax relief for shared lives carers.)

The government has confirmed that it will introduce legislation providing that payments to qualifying guardians will be exempt from income tax. The measure will have effect from payments received on or after 6 April 2010.

The detail of the intended measure broadly reflects the announcement made in the March 2010 Budget (see March 2010 Budget: key private client tax announcements: Relief for carers of children under special guardian and residence orders) except that it refers to "qualifying guardians" rather than "qualifying carers". However, those who qualify remain the same in that qualifying guardians are individuals who care for one or more children placed with them under:

The government intends to legislate for this measure in a Finance Bill as soon as possible after the summer recess.

(See June 2010 Budget - BN 26 - Income Tax: Special guardianship orders and residential orders.)

The June 2010 Budget confirms that a consultation will be undertaken during 2010 on the tax treatment of employment-related shares and securities offered under "geared growth" and similar arrangements.

A review of these arrangements was initially announced in the March 2010 Budget (see March 2010 Budget: review of tax treatment of growth shares, JSOPs, carried interest and similar arrangements), but the new announcement states clearly that "the aim of the consultation is to . . . ensure that employment income from employment related securities is subject to income tax and National Insurance Contributions".

(See page 1 of June 2010 Budget - Enforcement and Compliance - Summary of Announcements.)

HMRC and HM Treasury have published a joint discussion document on the creation of a new approach to tax policy and changes in taxation. The key tenets of the proposed new approach are:

The government's proposals in relation to each of these are considered in more detail below.

The government has confirmed that settlors of settlor-interested trusts who receive repayments of tax on trust income will be required to pay the sums received to the trustees. This extends the requirement in section 646 of the Income Tax (Trading and Other Income) Act 2005 for these settlors to pay over repayments of tax in respect of an allowance or relief in relation to trust income. The payments by settlors to trustees will be disregarded for inheritance tax purposes.

The previous government announced this measure in the March 2010 Budget (see 2009 Pre-Budget Report to Finance Act 2010: legislation tracker: Income tax: adjustments between settlors and trustees). The new announcement is virtually identical.

The government will include this measure in a Finance Bill to be introduced as soon as possible after the summer recess. The extended rule will apply to repayments relating to trust income arising on or after 6 April 2010.

(See June 2010 Budget - BN25 - Income tax adjustments between settlors and trustees.)

The June 2010 Budget confirmed that the coalition government will introduce legislation with effect from April 2011 to tackle "arrangements . . . which seek to avoid, defer or reduce liabilities . . . to income tax and National Insurance Contributions or to avoid restrictions on pensions tax relief". The measure is aimed at arrangements which use employee benefit trusts (EBTs) and similar vehicles. This measure was initially announced in the March 2010 Budget (see March 2010 Budget: tackling tax avoidance using employee benefit trusts), but the June 2010 Budget Report confirms that:

(See June 2010 Budget - Budget Report (paragraph 2.167) and page 2 of June 2010 Budget - PN3 - Tackling tax avoidance.)

As announced in the coalition agreement (see Legal update, Coalition agreement final version: private client implications), the Government will review the taxation of non-domiciled individuals to assess whether changes should be made to the current rules.

(See June 2010 Budget - Budget report (paragraph 1.98).)

The government announced that it will replace the existing rules on substantial donors to charity and that HMRC will consult informally on draft clauses during the summer. The aim is to publish final legislation in the autumn. The announcement does not contain any details on how the government intends to change the existing rules. The previous Labour administration proposed to introduce new legislation to replace the existing anti-avoidance rules relating to substantial donors to charities so that tax relief would not be available on donations to charities where the donor is party to an arrangement whose purpose (or one of whose purposes) is to extract value from the charity (see 2009 Pre-Budget Report to Finance Act 2010: legislation tracker: Substantial donor rules).

(See June 2010 Budget - Budget policy decisions (paragraph 2.104).)

The government announced that it will continue to work with the voluntary sector to improve the gift aid system and to encourage charitable giving. A review of the gift aid system was introduced by the previous Labour administration who commissioned a report on reform of the gift aid system (see Legal update, Report on proposals for gift aid reform published) and set up a gift aid forum in February 2010 which aimed to make recommendations in September (see 2009 Pre-Budget Report to Finance Act 2010: legislation tracker). Since the government has come into power, this deadline for an agenda for reform has been confirmed in the media but it is not referred to in the June 2010 Budget announcement.

(See June 2010 Budget - Budget policy decisions (paragraph 2.103).)

The main rate of corporation tax will be reduced to 27% (from 28%) for the year commencing 1 April 2011. This will apply to companies and groups whose annual profits exceed £1.5 million. The legislation for this will be included in the next Finance Bill (due to be published shortly). The rate of corporation tax for companies with ring-fenced profits from oil extraction in the UK and UK continental shelf (ring-fenced profits) will remain at 30%. Further annual reductions of 1% each subsequent year will also be made, culminating in a rate of 24% for the year commencing 1 April 2014.

The small companies rate of corporation tax will be reduced 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. The legislation for this will be included in the Finance Bill 2011. The small companies rate for companies with ring-fenced profits will remain at 19%.

(See June 2010 Budget - BN02 - Corporation tax main rates and June 2010 Budget - BN03 - Corporation tax small profits rates.)