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Technical Connection Budget 2009 Commentary

How do the Chancellor’s proposals affect financial advisers and their clients?

High-net-worth clients

With effect from April 6, 2010, people with a substantial income will lose £1 of their personal allowance for each £2 by which their “adjusted net income” exceeds £100,000. It means that, based on a personal allowance of £7,500, all of this will be lost when income reaches £115,000.

Income between £100,000 and £115,000 will effectively be taxed at 60 per cent. People with investment income who are in this personal allowance trap will no doubt be encouraged to reinvest into tax-free or tax efficient investments to remove or reduce the impact of this measure.

For those who have a taxable income of more than £150,000, they will find that they are subject to income tax at 50 per cent on the excess over this figure from April 6, 2010.

Such people will be even keener to maximise the use of tax-free and tax efficient products. They should make the most of the increase in the annual contribution limit on Isa investments to £10,200 from April 6, 2010 (October 6, 2009 for investors aged 50 or over).

They will also wish to invest in such a way as to maximise use of their annual CGT exemption and also consider tax-sheltered products such as Oeics (no internal CGT), offshore roll-up funds and investment bonds.

Investors in this category will need to bear in mind that the maximum rate of income tax on chargeable event gains on encashment of investment bonds will be 50 per cent (offshore bonds) and 30 per cent (UK bonds) – but, as is well known, tax deferred can be tax saved.

Persons with income of more than £150,000 will also find that, with effect from April 6, 2011, they will not qualify for full higher rate tax relief on pension contributions if they increase their pension savings over and above their normal pattern of regular pension savings and their total pension savings in a year is over £20,000. Specialist advice will be needed if such people anticipate restructuring their pension arrangements. Much detail on how this limitation will work has been published by HMRC and practitioners will need to be fully conversant with it.

Owners of private limited companies

Utilising loss relief

Those companies (and self employed persons) who are curr- ently suffering losses but enjoyed profits in the past will be pleased to know that the three-year carryback provisions for up to £50,000 of losses (introduced last year) have been extended until 2010.

Removing cash from a companyWhile it was reassuring to learn that corporation tax rates have been held, at their current rates, owners of private limited companies will be concerned about the likely future increase in the rate of income tax and National Insurance contributions – up 0.5 per cent from 2011/12.

Such people will continue to need advice on tax efficient ways of removing cash from the company – as they do every year. There will, of course, be a need to take into account the new income tax rates and limitations on pension contributions referred to above.


Trustees of discretionary trusts will also be hit with a bigger income tax charge in 2010/11. From April 6, 2010 the rate of income tax will move from 40 per cent to 50 per cent (32.5 per cent to 42.5 per cent for dividends). No minimum threshold level of income is needed for this tax rate to applyAs for higher-rate taxpaying individuals, tax-sheltered investments will be well worth considering.

Estate planners

No changes were announced on inheritance tax. With the nil-rate band increasing to £325,000 for tax year 2009/10 and asset values having reduced, now is a good time to consider lifetime gifts for those people who are worried about inheritance tax.


The new £10,200 annual limit will start on April 6, 2010 but for those aged 50 or over, the new limit takes effect from October 6, 2009. This will attract interest from all taxpaying investors, especially higher rate and future 50 per cent taxpayers.

Given the current limited yield, on cash deposits and the recent reduction in stock market values, stocks and shares Isas look particularly attractive.

The Isas v pensions debate will be an important one for those who will be affected by the removal of higher-rate tax relief on pensions contributions – especially those who expect to pay higher rates (40/50 per cent) on their pension income.

Finally, a potential opportunity to receive tax-free or tax-reduced “interest distributions” from offshore funds has been identified and prevented.


Iain Chadwick

The Budget 2015: a brief overview

Following George Osborne’s delivery of his sixth Budget as chancellor and the last of this current parliament, we have provided a brief overview of the initiatives put forward in his statement, focusing on the topics that have an impact upon the pensions landscape, savings, personal taxation and businesses.


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