Personal taxation

The personal allowance and basic rate limit for 2011-12

The following changes will have effect on or after 6 April 2011:

• The personal allowance for those aged under 65 will be increased by £1,000 to £7,475.
• The basic rate limit will be reduced so that higher rate and additional rate taxpayers do not benefit from the increase in the personal allowance. The exact figure will be confirmed when September's retail price index is published.
• The alignment of the upper earnings/profits limit (UEL/UPL) with the higher rate threshold for income tax will be maintained by reducing the UEL/UPL.

Furnished holiday lettings

The proposal inherited from the previous Government to repeal the special tax rules for furnished holiday lettings will not be implemented.  The current rules continue to apply for the 2010-11 tax year.

State pensions

The Government will uprate the basic State Pension by a triple guarantee of the highest of earnings, prices (CPI) or 2.5 per cent from April 2011.  

Child benefits 

From 2011-12, the child benefit will be frozen for three years. 

There will be a reduction in tax credit eligibility for families with household income over £40,000 as opposed to the current threshold of £50,000. However, low income families will get more child tax credit with the amount per child to rise by £150 above the rate of inflation next year. 

The health in pregnancy grant is to be abolished from April 2011 and the Sure Start maternity grant will also be restricted to the first child.

Changes to the rules on the deduction of income tax at source

At present the rules on the deduction of income tax at source are set out in primary legislation. The Government will legislate for an amendment to the rules relating to the time and manner in which persons need to report and remit the income tax deducted from payments of interest, patent royalties and other annual payments. Companies making such payments will be unaffected by the change.

The measure will have effect on or after the date that the Finance Bill receives Royal Assent. This will be after the 2010 summer recess.

UK Real Estate Investment Trusts (REIT's) and stock dividends

At the moment it is not possible for a UK-REIT to issue stock dividends as property income distributions to meet the requirement of distributing 90 per cent of the profits from the property rental business of the REIT.

A change to the legislation will be made to enable stock dividends to qualify as property income distributions. The measure will have effect for property income distributions made on or after the date that the enabling legislation receives Royal Assent.

Transitional measure deferring the effective requirement to buy an annuity until the age of 77

The Government has announced that it will end the effective requirement to use a pension fund to buy an annuity by age 75 with effect from 2011-12. Prior to the introduction of these changes, legislation will be enacted to increase the requisite age from 75 to 77 with effect from 22 June 2010. This change will also apply for the purposes of the inheritance tax charges that specifically apply to pension scheme members aged 75 and over.

For scheme members with money purchase arrangements who have not yet bought an annuity and reach age 75 on or after 22 June 2010:

• The strict minimum and maximum limits on income withdrawals will apply from their 77th instead of their 75th birthday;
• In the interim period before the main changes take effect in 2011-12, there will be tax charges of 35 per cent on lump sum death benefits paid by the scheme if they die on or after 22 June 2010 and aged 75 or over.

Income tax adjustments between settlors and trustees

Individuals who set up trusts (settlors) currently may receive repayments of income tax on trust income if they are liable to income tax at a lower rate than the trustees. Such repayments that relate to trust income that arises on or after 6 April 2010 will need to be paid over by the settlors to the trustees.

Income tax: special guardianship orders and residence orders

Income from providing care is currently taxed under the trading income rules, or the rules for miscellaneous income - the carer may claim a fixed rate of expenses for each child placed with them. From 6 April 2010, the carer will be exempt from income tax on any qualifying payments they receive. The enabling legislation will be enacted after the 2010 parliamentary summer recess.

Personal savings - indexing ISA limits from 2011

From 6 April 2011 the ISA limits will be increased in line with the Retail Prices Index (RPI) on an annual basis. The cash ISA limit with continue to be half the value of the overall ISA limit. In the event that the RPI is negative, the ISA limit will remain unchanged.