Debbie Annells

Managing Director

AzureTax Ltd

2011 UK Budget Briefing

25 March 2011

The BritishChamber of Commercein Hong Kong

Budget ReportUK Economy

• The economy is predicted to grow by 1.7% (1.2%) this year, 2.5% (2.3%) next year, 2.9% (2.9%) in 2013 and 2014 and 2.8% (2.7%) in 2015.

• The UK is set to miss the previous government’s “golden rule” – described as “disastrous” -of borrowing only to invest over the economic cycle.

• Consumer price inflation is expected to reach 4.4% by the end of 2011 before “returning to target in the medium term”. The inflation target remains at 2%, as measured by the Retail Prices Index.

• Unemployment is forecast to peak this year at 8.1% and then fall for each of the next four years, to reach 6.1% in 2015.

Borrowing/Deficit

• The structural current deficit “should be in balance” one year earlier by 2014-15.

• The measures are forecast to result in public sector net borrowing of £146B (£149bn) this year, £122bn (£116bn) next year, £70bn(£89bn) in 2013-14 and £46bn (£60bn) in 2014-15. Mr Osborne said by 2015-16 the deficit would be £29bn, .

Spending

• The state accounts for “almost half” of all national income which was “completely unsustainable”.

• Reductions in expenditure forecasts not evident however.

(GBP710B v GBP 696B last year)

Government Receipts

Government Spending2011-12

This amounts to approx GBP10,000 per person

Taxes

• From January 4 2011, the main rate of VAT rose from 17.5% to 20%. Current zero-rated items like children’s clothes and magazines will remain. (VAT rate in Germany 19%, in France 19.6%)

• Personal income tax allowance to be increased by £1,000 in April 2011 to £7,475 – worth £170 a year to basic rate taxpayers and to £8,105 in 2012-13.

• Councils offered extra funds to allow them to freeze Council tax for one year from April 2011.

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Merger of Income Tax and National Insurance

• A review of this will be implemented.

• Gift Aid limit to be increased from GBP500 to GBP2,500

• Statutory definition of “residence” to be introduced in 2012

Taxes

• Capital Gains Tax remains in 18% for low and middle-income savers but from midnight 22 June 2010, higher rate taxpayers l pay 28%.

• 10 % reduction in Inheritance Tax, if 10% of estate gifted to charity.

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Tax Policy Framework

• New framework introduced

• Office of Tax Simplification identified 43 tax reliefs which will be abolished.

Income Tax Measures - Previous

• 50% top tax rate, on earnings over GBP150,000,

from 6 April 2010 – a “temporary” measure

• Allowances phased out from GBP100,000

UK Income Tax rates

2010/11 £0 - £2,440 10%*£2,441 - £37,400 20%

£37,401 - £150,000 40% £150,000 and above 50%

2011/12 £0 - £2,560 10%*£2,561 - £35,000 20%

£35,001 and above 40% £150,000 and above 50%

* Savings tax rate except interest is 20%. Dividends 10% / 32.5%/42.5%

(£ per year) 2010/11 2011/12

Personal Allowance (age under 65) 6,475 7,475 Personal Allowance (age 65-74) 9,490 9,940Personal Allowance (age 75 and over) 9,640 10,090

Married couple’s allowance* (age less than 75 and born after 6th April 1935) N/A N/AMarried couple’s allowance* (age 75 and over) 6,965 7,295Married couple’s allowance* minimum amount 2,670 2,800Aged income limit 22,900 24,000

UK Personal Allowances

* Abates by £1 for every £2 of income over £100,000 from 2010/11

Pensions - Previous

Confirming previous announcements…• Salary over GBP180,000 – only basic rate relief• Salary over GBP150,000 – relief reduced on a

sliding scale• In practice those on GBP130,000 or more

maybe affected – salary calculated inclusive of employer pension/charity contributions

• Annual allowance raised to GBP250,000, lifetime allowance to GBP1,800,000 – frozen till 2015/16

• Increased to 28% from midnight on 22nd June 2010

• Split year treatment not clear

• Exempt amount £10,600

• Entrepreneurs relief doubled to £10m from 2011-12

Capital Gains Tax

Cigarettes, Alcohol and Fuel

• Fixed duty reduced to 1p per litre and duty “escalator” stopped

• Equivalent to a saving to 5p per litre

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Tax Avoidance and Tax Evasion

• 14 BN lost in 2008 per HMRC• New strategy paper to be issued• Enforcement of tax debts noticeably stricter• New Tax penalty regime coming in from April 2011,

as previously announced.

Pensions

• The government will accelerate the increase in state pension age to 66.

• There will be regular reviews to increase pension age future.

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Non UK Domiciles

• Remittance Basis Charge increases to £50,000 in year 12 of UK Tax residence.

• No “other” announcements re Non Doms in this Parliament.

• No remittance charge on direct investment into UK businesses.

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Non UK Domicile Statistics

Year Number

2004-05 110,000

2005-06 111,000

2006-07 117,000

2007-08 140,000

2008-09 123,000

The number of individuals who filed a UK self-assessment (SA) tax return and indicated that they were non-domiciled was as follows:

Year £ billion

2004-05 3.3

2005-06 4.0

2006-07 5.0

2007-08 6.9

2008-09 5.9

The total amount of UK income tax and capital gains tax (CGT) paid by individuals who completed an SA return and indicated that they were non-domiciled was as follows:

Business

• From April 2011, the threshold at which employers start to pay National Insurance will rise by £21 per week, above indexation.

• Corporation Tax will be cut this year by 2% to 26% and by 1% annually for the next three years, until it reaches 23%. The small companies’ tax rate will be cut to 20%; and in 2012 is TBA.

• Special Northern Ireland Corporation Tax rate

• R & D tax credits for SMEs 200% (from 175%)

Banks and Petroleum Companies

• The bank levy will be increased to 0.78% from Jan 2012 (0.7%), which will apply to the balance sheets of UK banks and building societies 2011. But smaller banks will not have to pay. • Implemented in France and Germany and the US

• Supplementary oil and gas co charge increases to 32%(20%)

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TOP 10 UK TAX TIPS - 2010/2011

• IHT - Annual gift value £3,000• CGT - Annual Exemption £10,500• Charitable donations for the Tax payer - up to 40% relief• Purchase p+m by business

(furnished holiday lettings loss cannot be outset against other

income after 5th April 2011)• NI and IT increases 6th April, so pay bonuses now.• ISA’s £10,200 ( £5,100 in cash)• VCT £200,000 (30% tax relief)• EIS £500,000 (20% tax relief increased to 30% in Budget).

(58% relief inc CGT)

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TOP 10 UK TAX TIPS – 2010/2011

• Tax refunds for 2006/07 to be claimed (re Higher Rate relief on pensions)

• If income under GBP130,000 for the last 3 years make pension conts up to £255,000; from 5th April its capped at £50,000.

• Non -Residents - check 90 days rule in UK.

• RBC - £30,000 payment arrangements in place by 5th April for

next year’s payment.

Any Questions?