Income tax changes (Budget 2009)
Income tax rates and allowances
The income tax personal allowance for 2009/10 remains at £6,475, as announced in the pre budget statement last November. However, rather than gradually reduce the basic personal allowance for income tax for individuals whose gross income is more than £100,000, the Chancellor has decided to fully withdraw the allowance for those with incomes over £100,000 with effect from 6 April 2010.
A new 50% top rate of income tax will be applied to those with incomes above £150,000 with effect from next April. This represents a two fold change from the pre budget statement where the Chancellor announced a top rate of 45% on incomes above £150,000 effective from 6 April 2011.
Tax rate on dividends
From 6 April 2010 there will also be a new higher rate of tax for dividend income. The new rate of tax of 42.5% will apply to dividends, which would otherwise be taxable at the new income tax rate of 50%.
Tax rate applicable to trusts
From 6 April 2010, the dividend tax rate will be increased to 42.5% and the trust rate of tax will be increased to 50%.
Tax relief on pension fund contributions
Higher rate tax relief will continue to be available on pension fund contributions until the end of the tax year 2010/11, however thereafter relief is to be restricted to those with incomes over £150,000 the effect of which will be to taper the relief to 20%.
The Chancellor has announced that he intends to consult on the implementation of this restriction but has already flagged up that prior to the change, the government will also introduce legislation to prevent higher rate tax paying individuals from taking advantage of the pensions relief by making substantial additional contributions prior to the restriction coming into effect on 6 April 2011.
Further extension of carry back of trading losses
The November 2008 pre budget report announced a temporary twelve month extension of loss carry back for business from one to three years, and this is to be extended for two years rather than one. It will be effective for the 2008/09 and the 2009/10 tax years.
The rules allow only trading losses to be carried back, but certain furnished holiday letting losses are treated as trading losses for these purposes.
Enhanced first year capital allowances.
The government has doubled the first year capital allowance from 20% to 40% for one year, introduced retrospectively with effect from 5 April 2009.
Tags: Budget, income tax