Lawyers Reading

Budget Summary 2011                             23 March 2011

 

With Chancellor George Osborne caught between a rock and a hard place as regards the yawning public sector deficit, it was perhaps inevitable that the Coalition’s belief that the best way to fix the problem is to stand firm against its doubters would underpin the measures contained in the Budget. Time will tell if the strategy is correct but, in the meantime, the Chancellor has left some tax planning opportunities open. In some cases, the door of opportunity slams shut on 5 April 2011, so if any of the below have resonance with you, get in touch fast!

 

In this bulletin we are concentrating on the unexpected changes and those most likely to demand action by the reader.

 

Before you undertake any tax planning or mitigation exercise, take professional advice.

 

Summary of Changes Affecting Private Individuals

 

Income Tax (IT)

Allowances generally will in future be uprated in line with the Consumer Prices Index.

 

Higher-Rate Tax

The tax-raising effectiveness of the 50 per cent band is being reviewed. If it proves to be ineffective, it will presumably be reduced in the next Budget, making 2011/12 a good year to top up pensions and the like (although see below). Business expenditure may well attract greater tax relief for expenditure allowable in 2011/12 than subsequently, giving an opportunity to plan spending to maximise tax relief.

 

If you have a family company with retained profits, it might be worth declaring a dividend now (and making the necessary accounting entries) and reducing dividends taken in 2011/12. This strategy will, however, alter the amount due ‘on account’ of IT for higher-rate taxpayers and will lead to HM Revenue and Customs assessing a larger ‘on account’ payment due on 31 January 2012.

 

Tax Relief on Pension Contributions

From 6 April 2011, pension contributions that qualify for tax relief will be reduced to an annual allowance of £50,000 instead of the previous limit of £255,000. If you have been considering a contribution to your pension policy that will exceed the limit, there is little time left – but bear in mind the difference in tax rates now and after 6 April.

 

Enterprise Investment Schemes and Venture Capital Trusts

Clients making investments in Enterprise Investment Schemes and Venture Capital Trusts will welcome the increase in tax relief on such investments – it rises from 20 to 30 per cent on 6 April 2011. Subject to ‘State Aid approval’, the Finance Bill 2012 will greatly increase the amount which can be invested in these schemes by individuals and make them available for investments in bigger firms.

 

Non-Domicile and Non-Resident Taxation

‘Non-doms’ resident in the UK will be subject to a higher annual charge, of £50,000, if they have lived in the UK for 12 years. The current £30,000 charge will be retained for non-doms who have been resident for at least seven of the past nine years and fewer than 12 years.

 

The ‘remittance basis’ of assessment for non-doms is being changed to exclude remittances for commercial investment in UK business.

 

These reforms are intended to come into effect in 2012.

 

In addition, the present lack of certainty in UK law as to what constitutes ‘residence’ for tax purposes is to be resolved by the introduction of a ‘statutory residence test’. This will probably be based on a ‘physical presence’ test similar to that used in most countries.

 

National Insurance

National Insurance Contributions and IT are to be combined. A consultation is being put in progress as to how best to achieve this. Pensioners are assured that this will not adversely affect them. The process is expected to take a number of years to complete.

 

Inheritance Tax (IHT)

The ‘nil rate band’ for IHT (currently £325,000) remains frozen until April 2015.

 

However, if you leave 10 per cent or more of your net estate (after deducting IHT exemptions, reliefs and the nil rate band) to charity, the Government intends to reduce the rate of IHT charged to 36 per cent as opposed to the standard rate of 40 per cent.

 

In practice, this may mean some wills have to be reworded to achieve this tax saving as well as the intended benefit for the charity.  

 

Miscellaneous

 

Savings Income

One of the tax reliefs being abolished from 6 April 2011 is the relief from IT on a NS&I Ordinary Account, which currently exempts the first £70 of interest.

 

On the plus side, the Government is introducing, for all UK resident children under the age of 18 who do not have a Child Trust Fund account, the ability to have a Junior Individual Savings Account (‘Junior ISA’), similar to an ‘adult’ ISA. This may be an attractive savings vehicle for younger family members.

 

Tax Co-operation in the EU

New regulations are being introduced in January 2012, based on the EU Directive on administrative co-operation in the field of taxation, which will:

 

 

In simple terms, the idea is to make sure taxes owed anywhere in the EU can be pursued anywhere else in the EU.

 

 

 

Charities

Charities will be able to recover the ‘Gift Aid’ tax supplement without paperwork on the first £5,000 of donations received in a year. This will come as a great relief to the trustees of many small charities. However, not mentioned in Mr Osborne’s speech was the fact that the ‘SA Donate’ scheme, whereby taxpayers can donate to charity on their tax return, is being withdrawn.

 

Pensions

The state pension age will rise to 66 in 2020. Future increases in the state pension age will be based on regular reviews of longevity – a worrying thought for the self-employed in particular. This will inevitably mean longer working lives with an increased risk of illness before retirement age. Permanent health and critical illness insurance will undoubtedly become more widely considered.

 

Air Passenger Tax (APT)

The proposed rise in APT is being delayed until next year and will be kept under review. However, APT is to be extended to private jets.

 

Tax Online to be Compulsory

Dealing with your tax affairs online will become compulsory some time between August 2012 and August 2013.

 

If any of the items in this bulletin apply to you, please get in touch. The end of the tax year is 5 April for individuals and 31 March for companies.

 

 

 

 

The information contained in this newsletter is intended for general guidance only. It provides useful information in a concise form and is not a substitute for obtaining professional advice.

The Office of Fair Trading (OFT) has issued a paper on unfair contracts, making it clear that for a consumer contract to be fair, it must mean what the customer thinks it means.

Companies that hide significant contractual clauses in the small print are therefore likely to find that the OFT will support a challenge to the contract on the basis that it is unfair (and thus unenforceable) if the effect of the small print is to change the meaning of the contract to something other than a reasonable person would have thought it meant.

The OFT claims that 70 per cent of its enforcement work on behalf of consumers relates to the terms and conditions contained in contracts.

The OFT advises businesses to review the paper and to consider whether changes are necessary in their contracts in order to make them comply with the law and with the OFT's definitions of fairness.

When the terms of a house building contract exclude a liability for losses which might be incurred by the client for defective works, the client has no redress under a general duty of care.

This was the decision of the Court of Appeal in a recent case concerning the construction of a property known as 12 Magnolia Rise, Prestbury. The property was constructed by P.E.Jones (Contractors) Ltd for its client a Mr James Robinson and subsequently sold to him after completion of the works.

During the construction of the property, Mr Robinson informed the contractors that he would like an additional gas fire flue built into a second room (the original contract included one gas fire flue). This was agreed under the contract and work progressed to completion in April 1992 when the work was completed and paid for.

It wasn’t until September 2004 that a British Gas service engineer discovered that the second gas flue was defective, resulting in both gas fires being disconnected for safety reasons. A subsequent surveyor’s report indicated that the flues had not been constructed in accordance with good building practice and within the Building Regulations in force at the time of construction. The required remedial work was estimated at a cost of around £35,000.

When attempts to resolve the owner’s claim for a refund of the cost of the remedial work failed, Mr Robinson issued a claim in the Manchester County Court. The claim was later transferred to the Technology and Construction Court where it was rejected on the grounds that the claim was out of time under the contract.

At appeal, it was argued that the trial judge was wrong in rejecting the claim and that the builder owed a duty of care to its client resulting in a liability for the economic loss suffered by the house owner. The appeal, along with the original claim, sought to rely on the Unfair Contract Terms Act. Although the build contract included terms excluding liability after a set period of time, it was argued that such terms could not exclude a general duty of care.

The Court of Appeal, however, upheld the trail judge’s ruling, dismissing the claim for damages against the builder.

In Tiffin v Lester Aldridge LLP, the Employment Appeal Tribunal found that a fixed share partner (FSP) of the firm was not entitled to claim unfair dismissal because he was a ‘partner’ within the meaning of Section 1(1) of the Partnership Act 1890 and not an ‘employee’ within the meaning of Section 230(1) of the Employment Rights Act 1996.

The EAT ruled that there is ‘no statutory provision or any decided case which specifies that the share of profits of a person or his or her contribution must reach a certain level before he or she can be regarded as being a partner’.

Solicitor Mark Tiffin had argued that his limited voting rights and the fact that he was under the direction of the other partners meant that he did not carry on ‘business in common’ with the other members of the LLP. This argument was dismissed.

A further argument that the ET had erred in law in giving undue weight to the label FSP, rather than the true nature of the relationship between the parties, was also dismissed. The ET had considered all the relevant facts before reaching its decision, which was open to it on the facts of the case.

Decisions in cases such as this will depend on the individual facts. We can advise you on all matters relating to partnership agreements or contracts of employment.

One of the changes made by the Equality Act 2010, the main provisions of which came into force on 1 October 2010, is to make it easier for a claimant to establish a case of ‘disability-related discrimination’, which was made more difficult following the decision in London Borough of Lewisham v Malcolm. In that case, the House of Lords ruled that a disabled tenant who was evicted from his flat for breach of the terms of his tenancy agreement (he had sub-let the flat in contravention of the lease terms) had not suffered discrimination despite the fact that he suffered from schizophrenia. The Court ruled that the Council, which was unaware of his condition, would have treated any other tenant the same way.

The Act replaces the concept of disability-related discrimination with a new protection from discrimination arising from disability. This means that a person discriminates against a disabled person if they treat them unfavourably because of something arising from, or in consequence of, their disability. In circumstances similar to those in Malcolm, a landlord would have to show that the treatment of a disabled tenant was a ‘proportionate means of achieving a legitimate aim’ in order to defeat a claim of disability discrimination against them. The Act does, however, provide a defence where the landlord can show that it did not know, and could not reasonably have been expected to know, that the tenant had a disability.

The Act also contains a new right for disabled tenants of residential or mixed use premises, whereby they can request that the landlord make physical changes to the common areas of a building, such as hallways and stairs, in order to meet their needs, where such changes are reasonable. The landlord may require the disabled tenant to pay for the work and to meet the cost of future reinstatement.

Contact us for advice on any landlord or tenant matter.

If you die without making a will, your estate and possessions will be divided according to the rules of intestacy. There are no guarantees that the distribution will correspond with your intentions. This is of particular importance to those living with a partner, as a surviving partner does not have the same inheritance rights as a spouse or civil partner. Taking the simple precaution of making your wishes known in a properly drafted will can prevent exposing your loved ones to financial difficulty.

Whatever your situation, the making of a will ensures that your wishes are complied with, but it can also help to minimise the tax burden when you die. In addition, it is normally possible to administer a testate estate more quickly than one that is intestate.

A will does not have to be complicated or expensive. Contact <<CONTACT DETAILS>> if you would like to discuss making or changing a will.

Survey commissioned by Barnardo’s. See press release at

http://www.barnardos.org.uk/news_and_events/media_centre/press_releases.htm?ref=57207.