From 6 April 2010, there will be new top rates of income tax for individuals with taxable income over £150,000. The dividend additional rate will be 42.5% and the additional rate for other income will be 50%. The new rates are 5% higher, and take effect one year earlier, than those announced in the 2008 Pre-Budget Report. There will be matching increases in trust rates of income tax (see below).

From 2010, the basic personal allowance for income tax will be reduced for individuals with adjusted net income over £100,000. The reduction will be £1 for every £2 over the income limit until the allowance is reduced to nil. This replaces the reduction that was due to take effect from 2010-11 in two stages, for individuals with income over £100,000 and over £140,000.

For the earlier announcements, see Pre-Budget Report 2008: Tax rates and allowances. For current information about income tax rates and allowances for individuals, see Practice note, Tax data: income tax: Individuals: rates and allowances. For more information about income tax generally, see Practice note, Direct taxes: Taxation of income: general principles.

(See 2009 Budget - BN01 - Additional rate of income tax and income-related reduction of the personal allowance from 2010-11.)

On 6 April 2010, the trust rate of income tax will increase from 40% to 50%, and the dividend trust rate will increase from 32.5% to 42.5%. The new rates are 5% higher, and take effect one year earlier, than those announced in the 2008 Pre-Budget Report (see Pre-Budget Report 2008: Trust rate increased to 45%). The new rates will apply to income over £1,000. They match the new additional rate and dividend additional rate of income tax for individuals. For individuals, however, the additional rates apply only to taxable income above £150,000. (See above.)

For current information about trust rates of income tax, see Practice note, Tax data: income tax: Trusts: rates and allowances. For more information about how income tax applies to trusts, see Practice note, Taxation of UK trusts: overview: How income tax applies to trusts.

(See 2009 Budget - BN01 - Additional rate of income tax and income-related reduction of personal allowance from 2010-11.)

The Chancellor announced an increase in the savings limit for individual savings accounts (ISAs) to £10,200, of which up to £5,100 can be saved in cash. The new limits will apply:

The new limits will be introduced by statutory instrument (see Draft Legislation, The Individual Savings Account (Amendment) Regulations 2009).

Under the current regulations on ISAs (The Individual Savings Account Regulations 1998 (SI 1998/1870)), the existing overall annual subscription limit is £7,200, of which £3,600 can be saved in a cash ISA with one provider. Savers can invest the balance of their ISA in stocks and shares with either the same or a different provider.

In the 2008 Pre-Budget Report, the Chancellor extended the range of investments eligible for ISAs (see Legal update, Pre-Budget Report 2008: Qualifying ISA investments to include multilateral institution bonds).

(See 2009 Budget - BN51 - Individual Savings Accounts (ISAs): Increasing ISA Limits for People Aged 50 and Over and Increasing ISA Limits for All.)

Following changes in the Finance Act 2008 to the remittance rules (which affect individuals who are either not domiciled, or not ordinarily resident, in the UK, see Practice note, Residence, ordinary residence and domicile: UK tax implications: Remittance basis of taxation), the Chancellor announced that the Finance Bill 2009 will contain further minor changes to the rules, in order to correct some anomalies and drafting errors in the original legislation.

Following advice that the current rules do not comply with the Human Rights Act 1998, the Chancellor has announced that non-resident individuals who currently qualify for personal allowances and reliefs from income tax solely because they are Commonwealth citizens, will no longer be entitled to the allowances and reliefs, with effect from 6 April 2010.

(See Budget 2009 - BN54 - UK personal allowances and reliefs for non-resident individuals.)

Individual investors whose shareholding in a non-UK company or fund is 10% or more will, for dividends received on or after 22 April 2009, have the benefit of a non-refundable tax credit (equal to one-ninth of the amount received) provided that the distributing company is resident in a country which has a double tax treaty with the UK that contains a non-discrimination article. HMRC has previously consulted on the draft legislation ( see Legal update, HMRC publishes draft legislation on personal dividend tax credits.) Anti-avoidance measures will be added to the legislation to tackle the use of conduct structures designed to secure a credit for dividends originating from a territory that does not qualify for the credit.

Holders of less than 10% of the shares in a non-UK company have, since 6 April 2008, been entitled to such a tax credit on dividends, but the corresponding entitlement was withdrawn on distributions from funds because of abuse by bond funds (see, Legal update, Finance Bill 2008: Public Bill Committee Proceedings (20 May, morning).)

. With effect from 22 April 2009, a tax credit will be available in respect of distributions from offshore funds that are largely invested in equities. If an offshore fund holds 60% or more of its assets in bonds and other interest-bearing assets, distributions will be treated as interest in the hands of investors and will not carry a tax credit. Exactly how and when the fund valuation will be carried out so as to give certainty to investors as to the nature of the distribution they are likely to receive could, for a mixed fund, present a challenge for the draftsmen.

See 2009 Budget - BN21- Taxation of Personal Dividends and 2009 Budget - BN22 - Taxation of Personal Dividends Distributions from Offshore Funds.

The government has confirmed that legislation will be introduced in the Finance Bill 2009 to change the definition of an offshore fund for UK tax purposes. In particular, the existing definition, based on the regulatory definition of a "collective investment scheme" will be replaced by a characteristics-based definition. In addition, the primary legislation governing the offshore funds regime will be amended so that changes to the regime can be made by regulations. Transitional measures will also be put in place for existing investors.

Originally it was intended that the new definition of an offshore fund would take effect from 1 October 2009. This date has been revised to 1 December 2009.

For background to the offshore funds regime, and for details of the offshore funds consultations, see Legal update, Offshore funds: "further steps" paper and draft legislation published.

(See 2009 Budget - BN25 - Offshore funds.)

From April 2011, the availability of higher-rate relief on contributions to registered pension schemes will be restricted for those earning more than £150,000 a year. Tapering will operate so that for those earning above £180,000 a year, relief will be available only at the basic rate. A full consultation on these provisions will be announced in due course.

Anti-forestalling measures to be enacted in the Finance Bill 2009 have been published in draft. These are designed to prevent individuals likely to be affected by the change making pension contributions outside their regular pattern in the run-up to April 2011. The anti-forestalling measures will in turn be subject to anti-avoidance provisions.

The core of the anti-forestalling measures will be the introduction of a "special annual allowance", which will apply in the 2009/10 and 2010/11 tax years in addition to the standard annual allowance. The special annual allowance will apply to an individual who:

For 2009/10, the special annual allowance charge will be levied at 20% of the amount by which total contributions taken into account exceed the special annual allowance. In other words, the effect of the charge will be to restrict the available tax relief to the basic rate.

In assessing liability for the special annual allowance charge, an individual's "total pension input amounts" (as used for testing against the standard annual allowance) will be adjusted by deducting "protected pension input amounts". There will be two types of protected deduction: normal ongoing pension saving and contributions to new (or reactivated) schemes set up on or after 22 April 2009.

The draft legislation contains detailed provisions relating to what counts as normal ongoing pension saving. Broadly, for defined benefit schemes, further accrual will be protected provided there has been no material change to the way that benefits are calculated under the arrangement on or after 22 April 2009. Material changes could include changes in the calculation of pensionable salary or an increase in the accrual rate.

For money purchase schemes, contributions are protected provided that on or after 22 April 2009, the rate at which contributions are being paid under the arrangement does not increase otherwise than in accordance with an increased rate which was expressly agreed before 22 April 2009. Note that individuals whose regular savings exceed £20,000 for 2009/10 or 2010/11 will only be liable for the special annual allowance charge on the amount by which their contributions exceed their regular savings. So an individual with a pattern of contributions in excess of this sum can continue to make them without incurring the charge, and attract higher-rate relief until April 2011.

As the new measures have immediate effect, special provisions will allow an individual who has inadvertently become liable for the special annual allowance charge to take a "contributions refund lump sum" if scheme rules allow this. Contributions made to schemes between 6 April and 22 April 2009 will not be liable for the special annual allowance charge, but will reduce the amount of the allowance available for the 2009/10 year.

HMRC says that if an individual were to become liable for the special annual allowance charge in addition to the standard annual allowance charge, the special charge would be reduced to prevent double charging. A test against the special annual allowance will be made in the year in which a member retires, even though this does not trigger a test against the standard annual allowance.

Anti-avoidance measures contained in the draft legislation will provide that protection from the special allowance charge will be lost if an individual participates in a scheme or arrangement which has as its main purpose (or one of its main purposes) the avoidance of liability to the special annual allowance charge, the current annual allowance charge or the lifetime allowance charge by reducing either the total adjusted pension input amount or the protected pension input amount.

Likewise, HMRC seems keen that salary sacrifice should not be used to circumvent the new restriction: for individuals in these arrangements, an amount equal to the employer's pension contribution corresponding to the salary sacrifice will count as "relevant income". Indeed, in the case of any "scheme" which has as its main purpose (or one of its main purposes) to secure that an individual's income is less than £150,000, his or her income is deemed to be £150,000 in any event.

In addition to technical guidance and draft legislation, HMRC has also published guidance for the pensions industry and for individuals.

(See 2009 Budget - BN47 - Pensions: limiting Tax Relief for High Income Individuals (Anti-Forestalling).)

Following the European Commission's formal request to the UK to amend its legislation on inheritance tax (IHT) reliefs for agricultural property and woodlands (see Legal update, European Commission asks UK to amend inheritance tax legislation), the Chancellor announced that these reliefs will be extended in the Finance Bill 2009 to cover property within the European Economic Area (EEA). The extension will take effect from 22 April 2009, and will also apply retrospectively for:

In both cases the earliest deadline for reclaiming tax overpayments will be 21 April 2010.

Agricultural property and woodlands within the EEA that qualify for the extended IHT reliefs will also qualify for capital gains tax hold-over relief for business assets under section 165 of the Taxation of Chargeable Gains Act 1992. The extension will apply retrospectively to past disposals, subject to the usual time-limits for making claims (five years from 31 January following the tax year to which the claim relates, reducing to four years from 1 April 2010).

For information about agricultural property relief from IHT, see Practice note, Inheritance tax agricultural property relief: overview.

For information about CGT hold-over relief on gifts of business assets, see Practice note, Tax on chargeable gains: general principles: Gifts of business assets.

(See Budget 2009 - BN50 - Inheritance tax: extension of agricultural property and woodlands reliefs to land in the European Economic Area.)

As part of the 2009 Budget, the government has published a Technical note on Furnished Holiday Lettings (FHL) in the European Economic Area (EEA).

Landlords with income from furnished holiday accommodation in the UK are currently treated as if they are trading for certain tax purposes, as long as they satisfy certain tests set out under the FHL rules. Landlords with income from furnished holiday lettings outside the UK but elsewhere in the EEA do not qualify for this treatment.

It has been recognised that this divergence in treatment may not be compliant with European law. As a result, the government has decided to repeal the FHL rules with effect from 2010-11.

Until then HMRC will treat the FHL rules as applying to landlords with furnished holiday accommodation outside the UK but within the EU. This Technical note addresses in more detail how HMRC will apply these rules.

See 2009 Budget: Furnished holiday lettings in the European Economic Area: Technical note.

The government has published a consultation document and impact assessment considering possible amendments to the disclosure of tax avoidance schemes rules as they relate to stamp duty land tax (SDLT).

The government announced in April 2008 that the SDLT disclosure rules would be extended to residential property where the value of the property is greater than £1 million (see Practice note, SDLT disclosure regime: Extending the SDLT disclosure regime for high value residential properties). It was subsequently announced as part of the 2008 Pre-Budget Report that this would include a mechanism for identifying users of schemes which are disclosed (see Legal update, Pre-Budget Report 2008: key business tax announcements: SDLT disclosure regime and residential property: identification of scheme users).

The consultation document published as part of the 2009 Budget includes draft legislation effecting the proposed amendments and an impact assessment.

PLC Tax will publish an update considering the consultation document in more detail very shortly.

The temporary increase in the residential SDLT threshold (from £125,000 to £175,00) will be extended so that it will now apply to property acquisitions with effective dates (normally completion) falling on or before 31 December 2009.

When the temporary threshold increase was introduced in September 2008, it was apply to transactions with an effective date after 2 September 2008 and before 3 September 2009 (see Legal update, SDLT exemption for residential property transactions of up to £175,000 from 3 September 2008). The temporary increase was introduced by way of regulations (see Legal update, £175,000 SDLT exemption: implementing regulations made). Those regulations will be revoked and replaced by new provisions in the Finance Bill 2009.

The measure will benefit buyers of residential property, where the chargeable consideration is not more than £175,000, for an extended period (previously, this measure was only available for acquisitions with an effective date falling before 3 September 2009).

For more information on SDLT and residential property, see Practice note, SDLT reliefs for residential property.

(See 2009 Budget - BN45 - Stamp Duty Land Tax: Temporary Increase in Thresholds.)

Legislation will be introduced in Finance Bill 2009 to change the SDLT relief for leasehold enfranchisement by removing the requirement that the relief can only be claimed by a statutory "Right to Enfranchise Company". This change will apply to land transactions with effective dates falling on or after 22 April 2009.

Until this change, although the relief was provided for in the legislation, it could not be claimed because statutory provision for Right to Enfranchise Company has never been brought into force (see Practice note, SDLT reliefs for residential property: The reliefs and Legal update, SDLT: collective enfranchisement relief (High Court)).

This is a welcome measure because it means that the relief can now be claimed by leaseholders exercising statutory rights of leasehold enfranchisement.

(See 2009 Budget - BN46 - Stamp Duty Land Tax: Leasehold Enfranchisement.)

The government has confirmed that legislation will be introduced in the Finance Bill 2009 which will restrict tax relief for interest payments on loans used to invest in partnerships and close companies and which are guaranteed to produce a post-tax profit.

The measure was announced by the Treasury on 19 March 2009 and HMRC published draft legislation and an explanatory memorandum shortly after. For further details, see Legal update, Draft legislation counteracting avoidance involving interest relief. The draft legislation has been amended since then with a view to ensuring that the normal commercial transactions are not affected.

The legislation will apply to interest payments made on or after 19 March 2009.

(See 2009 Budget - BN38 - Anti-avoidance: interest relief.)

The threshold of tax relievable donations that a person can make to a charity without becoming a substantial donor to that charity is to be increased.

The substantial donors rules are intended to prevent the abuse of tax reliefs by "substantial donors" and those connected with them. The rules are based on the premise that all transactions between a substantial donor and a charity potentially have the effect of returning value from the charity to the donor. So certain transactions between a charity and a substantial donor, or a person connected with a substantial donor, result in the charity being treated as incurring "non-charitable expenditure". As a result, the charity is taxed on an amount of income or gains equivalent to the non-charitable expenditure, whereas it would normally be exempt from tax. (For more information, see Legal update, Substantial donors to charity: HMRC publishes consultation responses document: Background.)

The current rules define a substantial donor as a person who makes tax relievable donations to a charity of £25,000 or more in 12 months or £100,000 or more in a six year period. The latter threshold is being increased to £150,000 by statutory instrument (see Draft legislation, The Substantial Donor Transactions (Variation of Threshold Limits) Regulations 2009).

(See 2009 Budget - BN53 - Charities: Substantial Donors Regulations.)

In the 2009 Budget, the Government announced that it would consult further with the charitable sector about the anti-avoidance rules relating to substantial donors to charity before amending the existing legislation. It aims to bring forward the proposals at the 2009 Pre-Budget Report, with amended legislation to follow in 2010.

The existing legislation on substantial donors addresses abuse of tax reliefs for charities and donors by substantial donors (and those connected with them) and has met with criticism since its introduction in 2006. Legislative reform was anticipated, following HMRC's publication of a summary of the responses to its consultation on the legislation in January 2009 (see Legal update, Substantial donors to charity: HMRC publishes consultation responses document). However, the Government has indicated the need for further consultation before making substantial legislative changes.

(See paragraph 5.85, Budget 2009 Report, Helping People Fairly, 5.85.)

The Finance Bill 2009 will introduce legislation to stop schemes intended to obtain income tax loss relief using offshore life insurance policies, as announced in a statement by HM Treasury on 1 April 2009 (see Legal update, Draft legislation to counteract avoidance using life insurance policies).

When gains are made on chargeable events relating to life policies, such as the assignment or surrender of a policy, income tax is charged on the gains under the rules in Chapter 9 of Part 4 of the Income Tax (Trading and Other Income) Act 2005. HMRC has identified avoidance schemes that purport to create losses from offshore life insurance policies that can be set against other income. The Treasury announcement stated that the government does not accept that the schemes work. However, it has introduced the proposed legislation to put beyond any doubt that income tax loss relief is not available where a chargeable event calculation produces a negative result.

The draft legislation amends section 152 of the Income Tax Act 2007 (ITA 2007), which allows for loss relief against miscellaneous income, to make it clear that the loss relief cannot be claimed.

The legislation will apply where chargeable events occur on or after 6 April 2009, removing any scope to claim income tax loss relief for losses relating to 2009-10 and subsequent years.

In addition, the legislation includes transitional provisions that:

(See Budget 2009 - BN57 - Avoidance using life insurance policies.)

The government has announced a new disclosure opportunity (NDO) for UK residents holding offshore accounts. The NDO is described as a final opportunity and will run from autumn 2009 to March 2010. It will allow account holders to make voluntary disclosures of unpaid tax. They will be expected to pay the tax that they owe plus interest and penalties. The level of penalty will be announced before the scheme opens and is likely to be lower than under normal rules. HMRC will also ask the permission of the First Tier Tribunal to issue notices requiring financial institutions to provide information about offshore account holders.

The NDO was mentioned in the 2008 Pre-Budget Report (see Pre-Budget Report 2008: key business tax announcements: Offshore disclosure). For details of the previous disclosure procedure, see Legal update, Income Tax: Offshore bank accounts: disclosure procedure for taxpayers. For more information about the First Tier Tribunal, see Practice note, Tax appeals: new tribunal system from 1 April 2009.

(See 2009 Budget - HMRC: Compliance Proposals. This information is confirmed in paragraph 5.97, Chapter 5, Economic and Fiscal Strategy Report; paragraph A.163, Chapter A, Financial Statement and Budget Report; and page 16, PN01 - Building Britain's future.)

To discourage potential users of these schemes, HMRC will shortly publish a list of avoidance schemes that it believes to be ineffective, and that it will challenge when encountered.

(See Budget 2009 - Press Notice 3.)

The government has confirmed that the Finance Bill 2009 will include legislation relating to transfers of income streams. These provisions are the result of a long period of consultation focusing on a principles-based approach to financial products avoidance.

The initial consultation was launched on 6 December 2007 (see further Legal update, Consultation on principles-based approach to financial products tax avoidance).

The original intention was to include the legislation in the Finance Act 2008. However, as part of the 2008 Budget, the introduction of this legislation was deferred until 2009.

As part of the 2008 Pre-Budget Report, HM Treasury and HMRC published a new consultation document on the rules (see Legal update, Pre-Budget Report 2008: key business tax announcements: Principles-based approach to financial products avoidance: further consultation).

The government has announced that it will introduce three new measures in the Finance Bill 2009, which will allow HMRC to:

The measures are part of a package of proposals consulted on in November 2008 (for further details, see Legal update, Modernising Powers, Deterrents and Safeguards: Next stage: Payments, repayment and debt). In addition, HMRC published draft legislation for implementing the managed payment scheme and for tracing missing debtors in December 2008 (see Legal update, Interest, penalties, payment services and debt management: draft legislation published). The following two proposals mentioned in the November 2008 consultation document will not be implemented in the Finance Bill 2009 but HMRC will continue to consider them:

The government has indicated that managed payment plans will not be introduced before April 2011 and the collection of small debts through PAYE is likely to begin from April 2012. Power to trace missing debtors, however, will have effect from the date the Finance Bill receives Royal Assent.

(See 2009 Budget - BN88 - Review of HMRC powers, deterrents and safeguards: payments, repayments and debt; Modernising Powers, Deterrents and Safeguards: Responses to consultations and explanations; Impact assessment for Payments, Repayments and Debt.)

The government has announced that legislation will be introduced in the Finance Bill 2009 to extend the new compliance checking framework set out in Schedules 36 (information-gathering powers), 37 (record-keeping obligations) and 39 (alignment of time limits) to the Finance Act 2008 to:

This measure was consulted on in November 2008 (for further detail, see Legal update, Modernising Powers, Deterrents and Safeguards: Next stage: Compliance checks). Draft legislation on record-keeping obligations and alignment of time limits was published in February 2009 (see Legal update, Record-keeping and time limits: draft legislation published).

HMRC has indicated that, as a result of the responses to the consultation, a number of changes to the draft legislation will be reflected in the Finance Bill 2009, including:

The measure effecting HMRC's information-gathering powers and a taxpayer's record keeping obligations will be brought into effect by Treasury Order (expected to be 1 April 2010). The alignment of time limits is not expected to become fully operative until 1 April 2011.

(See 2009 Budget - BN89 - Review of HMRC powers, deterrents and safeguards: compliance checks; Modernising Powers, Deterrents and Safeguards: Responses to consultations and explanations and Impact assessment: compliance checks.)

Legislation will be included in the Finance Bill 2009 to reform the penalties regimes for late filing of returns and late payment of tax.

HMRC consulted on the proposed reforms in November 2008 (see Legal update, Modernising Powers, Deterrents and Safeguards: Next stage: Penalties for late filing and late payment). Despite concern from respondents about the increased administrative burden on employers, the reforms will include penalties for late payment of in-year PAYE.

The new regime will require changes to HMRC's computer systems, and so will be phased in over a number of years. Penalties for late payment of in-year PAYE will be introduced first, in April 2010.

Under the new regime for in-year penalties for late payment of PAYE, penalties will depend on the number of defaults in any 12 month period:

The consultation proposed a number of methods for determining employers' compliance in this area, including possibly requiring employers to complete monthly returns, or expanding the annual PAYE return (form P35) to include information to break down the tax liability by month. Respondents to the consultation were concerned about the additional administrative burden of the proposals, particularly for small companies. HMRC therefore proposes initially to apply the new penalty regime for PAYE on a "risk assessment basis targeting the worst offending late payers", and that publicity for the new regime should help improve compliance rates.

Penalties for late filing where the obligation is annual or "occasional" will be as follows:

Penalties for late payment where the obligation is annual or "occasional" will be as follows:

Penalties for late filing of construction industry scheme returns will be as follows:

Penalties for late payment of tax will be suspended where the taxpayer has agreed a "time to pay" arrangement with HMRC.

Penalties will not be imposed where the taxpayer has a "reasonable excuse", and HMRC is considering expanding its guidance on the meaning of this phrase to take into account responses to its consultation document. Taxpayers will also have a right of appeal against all penalty decisions.

(See 2009 Budget - BN90 - Review of HMRC powers, deterrents and safeguards: penalties for late filing of returns and late payment of tax; ; Modernising Powers, Deterrents and Safeguards: Responses to consultations and explanations and Impact assessment: Working towards a harmonised regime for interest and meeting the obligations to file returns and pay tax on time.)

The government has announced that legislation will be introduced in the Finance Bill 2009 to create a harmonised interest regime for most taxes and duties with the exception of corporation tax and petroleum revenue tax.

Current provisions provide for a range of interest regimes with a number of differences adding unnecessary complexity. The new provisions will replace the different regimes with a single legislative framework. HMRC consulted on proposals for harmonising interest in November 2008 (see Legal update, Modernising Powers, Deterrents and Safeguards: Next stage: Interest) and published draft legislation in December 2008 (see Legal update, Interest, penalties, payment services and debt management: draft legislation published. HMRC has indicated that it proposes to pursue interest on late paid employers' in-year PAYE on a risk assessment basis.

Rates will be aligned by a series of Treasury Orders to have effect shortly after the date that the Finance Bill 2009 receives Royal Assent.

(See 2009 Budget - BN91 - Interest harmonisation; Modernising Powers, Deterrents and Safeguards: Responses to consultations and explanations and Impact assessment: Working towards a harmonised regime for interest and meeting the obligations to file returns and pay tax on time.)

The government has announced that legislation contained in the Finance Bill 2009 will require HMRC to prepare and maintain a charter. The charter will set out standards of behaviour and values to which HMRC will aspire in dealing with taxpayers and others. The legislation will require the charter to be in place by 31 December 2009.

(See 2009 Budget - BN92 - HMRC charter.)