Pre-Budget Report 2009
The Chancellor, Alistair Darling, published his Pre-Budget Report on Wednesday 9th December 2009.
With Government debt running to hundreds of billions, the Chancellor was unlikely to give much away. There was the introduction of further anti-avoidance provisions in a number of areas as well as a final prompt for individuals to disclose holdings in offshore accounts.
Below you will find a summary of the main announcements.
Pensions Tax Relief
As previously announced in the April 2009 Budget, individuals on incomes above £150,000 will have tax relief on pensions restricted from 2011. The relief will taper on income between £150,000 and £180,000 – eventually restricting relief to the basic rate (20%).
The Chancellor announced that, from 6 April 2011, those with income over £130,000 will have employer pension contributions added to see if they are over the £150,000 income threshold that will trigger restrictions on higher-rate tax relief.
As a consequence, there will be an immediate increase in the number of individuals who will potentially have restricted relief on significant future pension accrual between 9 December 2009 and 5 April 2011.
Individuals whose relevant income (excluding employer contributions) exceeds £130,000 for the current tax year or either of the two previous tax years will, from 9 December 2009, be subject to the same restrictive tax relief provisions that, since 22 April 2009, had applied to individuals with relevant income over £150,000.
The restriction of relief will normally be administered via the self-assessment process – rather than via the pension provider. Where the charge is particularly large, individuals will be able to elect to have their pension scheme pay the charge as a deduction from their pension fund.
This will apply to defined contribution and defined benefits schemes.
Because of this change the anti-forestalling measures introduced in April 2009 will be extended to prevent anyone with an income of above £130,000 from 9th December 2009 abusing the system.
Public Sector Pensions
The Chancellor has announced reforms to the Teachers, Local Government, NHS and Civil Service pension schemes, which will cap the contribution to pensions made by employers, thereby limiting the liability of the taxpayer as pensions become more valuable. Cost increases below the cap will be shared equally between employers and employees, and those above the cap met solely by employees. In addition, as part of cap and share, the Government will expect those earning the highest salaries to pay a greater contribution towards their pension. These reforms will save an estimated £1 billion a year from 2012-13, and at least twice this amount over the long-term.
Increase to National Insurance contributions
The 0.5% increase to both employee and employer National Insurance (NI) announced on 9th December is in addition to a 0.5% increase already announced, which means that in 2011/12 NI levels for both employees and employers will increase by 1%.
Green Incentives
There are some new green incentives being introduced. These include replacing your old inefficient boiler and selecting an electric car for your company car, as the Government continues to strive towards reducing our carbon footprint.
Bonus payments to Bank Employees
In a move that was widely anticipated, discretionary bonuses over £25,000 paid to bank employees will effectively be taxed twice. Employers will only be subject to a one-off 50% tax rate if they undertake “banking activities” as the intention is not to catch asset management companies by this measure.
Value Added Tax & Stamp Duty
VAT will revert back to its old level of 17.5% and the stamp duty holiday on property purchases will return to its previous threshold from 1st January 2010.
Personal Allowances
Personal allowances and thresholds have remained virtually unchanged based on the fact that the annual change in the Retail Prices Index was negative for September - the month used in legislation. The Basic State Pension, however, will be increased by 2.5% from April 2010 and certain benefits, such as Child Benefit, will increase by 1.5%.
Pre-Budget Report 2009
The Chancellor, Alistair Darling, published his Pre-Budget Report on Wednesday 9th December 2009.
With Government debt running to hundreds of billions, the Chancellor was unlikely to give much away. There was the introduction of further anti-avoidance provisions in a number of areas as well as a final prompt for individuals to disclose holdings in offshore accounts.
Below you will find a summary of the main announcements.
Pensions Tax Relief
As previously announced in the April 2009 Budget, individuals on incomes above £150,000 will have tax relief on pensions restricted from 2011. The relief will taper on income between £150,000 and £180,000 – eventually restricting relief to the basic rate (20%).
The Chancellor announced that, from 6 April 2011, those with income over £130,000 will have employer pension contributions added to see if they are over the £150,000 income threshold that will trigger restrictions on higher-rate tax relief.
As a consequence, there will be an immediate increase in the number of individuals who will potentially have restricted relief on significant future pension accrual between 9 December 2009 and 5 April 2011.
Individuals whose relevant income (excluding employer contributions) exceeds £130,000 for the current tax year or either of the two previous tax years will, from 9 December 2009, be subject to the same restrictive tax relief provisions that, since 22 April 2009, had applied to individuals with relevant income over £150,000.
The restriction of relief will normally be administered via the self-assessment process – rather than via the pension provider. Where the charge is particularly large, individuals will be able to elect to have their pension scheme pay the charge as a deduction from their pension fund.
This will apply to defined contribution and defined benefits schemes.
Because of this change the anti-forestalling measures introduced in April 2009 will be extended to prevent anyone with an income of above £130,000 from 9th December 2009 abusing the system.
Public Sector Pensions
The Chancellor has announced reforms to the Teachers, Local Government, NHS and Civil Service pension schemes, which will cap the contribution to pensions made by employers, thereby limiting the liability of the taxpayer as pensions become more valuable. Cost increases below the cap will be shared equally between employers and employees, and those above the cap met solely by employees. In addition, as part of cap and share, the Government will expect those earning the highest salaries to pay a greater contribution towards their pension. These reforms will save an estimated £1 billion a year from 2012-13, and at least twice this amount over the long-term.
Increase to National Insurance contributions
The 0.5% increase to both employee and employer National Insurance (NI) announced on 9th December is in addition to a 0.5% increase already announced, which means that in 2011/12 NI levels for both employees and employers will increase by 1%.
Green Incentives
There are some new green incentives being introduced. These include replacing your old inefficient boiler and selecting an electric car for your company car, as the Government continues to strive towards reducing our carbon footprint.
Bonus payments to Bank Employees
In a move that was widely anticipated, discretionary bonuses over £25,000 paid to bank employees will effectively be taxed twice. Employers will only be subject to a one-off 50% tax rate if they undertake “banking activities” as the intention is not to catch asset management companies by this measure.
Value Added Tax & Stamp Duty
VAT will revert back to its old level of 17.5% and the stamp duty holiday on property purchases will return to its previous threshold from 1st January 2010.
Personal Allowances
Personal allowances and thresholds have remained virtually unchanged based on the fact that the annual change in the Retail Prices Index was negative for September - the month used in legislation. The Basic State Pension, however, will be increased by 2.5% from April 2010 and certain benefits, such as Child Benefit, will increase by 1.5%.
