01: Introduction

In an unusually late April Budget, Alistair Darling introduced important tax and other changes against a background of deepening economic difficulties in the UK and globally.

There was welcome news for savers in the increase of the ISA limit to £10,200 and the cash ISA limit to £5,100, although this was restricted to investors aged 50 or over in the current tax year, and it will only be extended to others from 2010/11.

Those with high incomes were targeted in three announcements. An increase in the top rate of tax was heralded in the Pre-Budget Report last November, along with restrictions to the personal allowance. But the provisions turned out to be tougher than originally proposed and will now be introduced a year earlier.

There were rumours of the removal of higher rate tax relief for pension contributions but no announcement was made in the Pre-Budget Report. The relief will start to be withdrawn for people with incomes over £150,000. The full provisions do not come into force until April 2011, but there are temporary measures to stop a rush to make unusually large pension contributions in the next two years.

Budget highlights

• ISA limits will be raised to £10,200 (£5,100 for cash deposits) in 2009/10 for anyone aged 50 or over. The higher limits apply to all investors from 6 April 2010.
• A first year capital allowance of 40% will apply to qualifying capital expenditure if it exceeds the £50,000 annual investment allowance in the 12 months from April 2009.
• The small companies corporation tax rate will remain at 21% for the financial year 2009 as previously announced.
• For broadly the next two years, businesses will be able carry back their trading losses of up to £50,000 for three years rather than just one year.
• Tax relief on pension contributions will be restricted to the basic rate for individuals with incomes over £180,000 from 6 April 2011. Relief will be tapered for incomes over £150,000. From 22 April 2009, only basic rate tax relief on contributions will be available where contributions exceed the greater of £20,000 a year or the individual’s ‘normal pattern of contributions’.
• There will be a top rate of income tax for 2010/11 of 50% (42.5% on dividends) for individuals with incomes of more than £150,000. The rate applicable to trusts will also rise to 50% (42.5% on dividends) from 6 April 2010.
• The personal income tax allowance (£6,475 in 2009/10) will be withdrawn at the rate of £1 for every £2 of income over £100,000 from 2010/11.

© 22 April 2009. This summary has been prepared very rapidly and is for general information only. The proposals are in any event subject to amendment before the Finance Act is passed. It is recommended you seek competent professional advice before taking any action on the basis of the contents of this publication.Last Updated