1. Budget 2010 This presentation is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this presentation. This presentation represents our understanding of law and HM Revenue & Customs practice as at 22 June 2010. 22 June 2010 Emergency

2. The emergency Budget The ‘inevitable Budget’ We are all in this together Fair but tough Balance of spending cuts to tax increases 77:23 Cumulative departmental spending cuts of the non-ring fenced departments will average 25% by 2014/15

3. EARLIER CHANGES

4. 50% tax rate on incomes over £150,000 2010/11 Loss of personal allowance over £100,000 = 60% tax rate 2010/11 Limitation of higher rate tax relief on pensions  2010/11 – anti-forestalling  2011/12 – full restrictions now abandoned Earlier changes - income tax

5. Capital gains tax  Tax rate at 18%  Entrepreneur’s relief doubled to £2m  Annual allowance £10,100 IHT NRB frozen at £325,000 to 2015 Stamp duty up to 5% for residential property over £1m from 6 April 2011 Earlier Changes - other taxes

6. From 2011/12 Increase NICs on band earnings  Employers from 12.8% to 13.8%  Employee from 11% to 12% Self employed class 4 main rate 8% to 9% Additional rate for employees and self-employed from 1% to 2% Earlier changes - NICs

7. VALUE ADDED TAX

8. Value Added Tax Standard rate of VAT  Increases to 20% from 4 January 2011  Raises extra £12.1bn in 2011/12  Increase adds 1.5% to annual inflation throughout 2011 Reduced rate of VAT  Unchanged at 5%  Applies to domestic fuel etc 8

9. CAPITAL GAINS TAX

10. Capital gains tax CGT rates from 23 June 2010 o Gains taxed as top slice of income (again) o Gains within basic rate band taxed at 18% o Gains above basic rate band taxed at 28% o 28% rate applies for trusts Annual exemption o Remains at £10,100 - Taxpayer can choose which gains to offset o Normal indexation of exemption from 2011/12 o Personal allowance for income tax is a deduction o Entrepreneurs’ relief 10

11. Capital gains tax: asset sale £50,000 Non-business gain  Higher rate tax payer  Full annual exemption available 11 Pre-Budget £ Post-Budget £ Gain50,000 Annual exemption(10,100) Taxable39,900 Tax@18% = £7,182@28% = £11,172

12. CGT transitional rules 2010/11 Gains realised on or before 22 June 2010 are taxed at 18% Gains from midnight on 22 June added to top slice of taxable income for the tax year and taxed at 18% or 28% depending on whether  Below the BR tax limit of £37,400 or  Above the BR tax limit of £37,400 Pre Budget gains are NOT added to income Taxpayers can choose how to allocate  Their losses  Their £10,100 annual exemption

13. CGT – the new system BR limit Inc. Ex. Gain 0% 18% 28%

14. CGT rules 2010/11 - example George realises two gains in 2010/11  May 2010 £15,000  July 2010 £34,000 George’s income after the personal allowance and other reliefs for 2010/11 is £24,000 Question - How should he allocate his annual allowance? Answer – against his post Budget gain  The May gain is taxed at 18% flat rate  The July gain of £34,000 is added to his taxable income of £24,000 – total potential of £58,000, ie £20,600 at HR. - £13,400 is taxed at 18% - £20,600 - £10,100 = £10,500 @ 28% saving £1,100

15. Entrepreneurs’ relief 10% rate applies to eligible gains Previously 4/9 of taxable gain taxed at 18% =10% tax rate £5m lifetime limit for disposals after 22 June 2010 £2m life time limit applies to 2010/11 disposals up to 22 June 2010

16. CGT PLANNING

17. CGT planning Use annual for both spouses/partners Use lower tax payer’s basic rate band for capital gains – up to £37,400 Create years of low income for large disposals 28% is still preferable to 40% or 50% 18% CGT not very different from 20% income tax ISAs become relatively more valuable EIS deferral may be more worthwhile Transitional planning in 2010/11 – set against post Budget gains  The annual exemption  Losses

18. Bonds v collectives Key issue is the underlying assets – whether income or capital growth Non-CGT payers may be better off in collectives for growth  Annual exemption of £10,100  Death  Freedom from CGT in collectives Otherwise the position in more complex Bonds provide tax shelters while taxes are high

19. Warning Tax rates, rules, reliefs and exemptions all change CGT  30% flat rate  Taxed as income - Indexation - Taper relief  18% flat rate  10%, 18% and 28% taxed as income

20. Capital gains tax: business sale £500,000 Long term business gain Higher rate tax payer Full annual exemption available 20 Pre-Budget £ Post-Budget £ Gain500,000 Entrepreneurs’ relief(222,222) N/A Net gain277,778 Annual exemption(10,100) Taxable267,778489,900 Tax@18%= £48,200@10%= £48,990

21. INCOME TAX

22. Income tax Personal allowance rises by £1,000 to £7,475 in 2011/12 o Basic rate limit will be reduced so that higher rate tax payers do not benefit. o Ultimate goal is £10,000 personal allowance No revisions to tax rates o 50% remains Basic rate limit frozen in 2012/13 and 2013/14 22

23. Personal tax allowances 23

24. Personal tax - investment ISAs  2010/11 maximum investment £10,200  2010/11 cash element£5,100  Inflationary increases from 2011/12 confirmed, based on previous September’s RPI.  Rounded to convenient £120 multiple VCT  70% minimum for eligible shares, instead of current 30%  Will not affect VCT money raised before implementation  No start date yet set. 24

25. NATIONAL INSURANCE

26. National Insurance Contributions Rates 2010/11: No changes 2011/12: 1% increase in all main rates Limits Secondary threshold (employer’s) rises by £21 pw above inflation in 2011/12 – reduces the impact of the NIC rise Primary threshold (employee’s) rises to match personal allowance in 2011/12 – £5,715 up to £7,475 26

27. National Insurance Contributions New business employment incentive Three year scheme starting by September 2010 For most of UK outside the ‘Greater South East’ of England Applies to businesses set up from 22 June 2010 12 month employer class 1 NIC holiday for first 10 new employees recruited in first year Maximum £5,000 per employee Further announcement imminent 27

28. PENSIONS

29. Pensions High income excess relief charge  Introduced in Finance Act 2010 and to be scrapped before April 2011 start date Annual allowance may be cut to £30,000 - £45,000 from 2011/12  Replacement for high income excess relief charge  A simpler solution along the lines the industry proposed 29

30. Compulsory annuitisation ends  Consultations on end to compulsory annuitisation by 2011/12, interim measures for 2010/11  Income withdrawals can continue past 75 from 22 June  Temporary extension to age 77 for those reaching 75 on 22 June 2010  Extension of pre-75 IHT treatment to members aged 75 and over – but they must not be 75 before 22 June  The existing ASP limits on maximum and minimum withdrawals apply from age 77 - rather than age 75  If the individual has NOT bought and annuity  And NOT reached age 75 before 22 June  Age 75+ lump sum death benefits 35% tax & no IHT

31. Pension planning Pensions may be beneficial for high income clients with limited contributions, - but watch out for DB schemes Maximise contributions in 2010/11  Below £130,000 income make very large employer contributions  £130,000 and above use the anti-forestalling rules for £20,000 to £30,000 contributions or regular inputs  Watch out for pension input periods eg pension input period starting 1 August, - Contribution pre-August 2010 subject to 2010/11 rules - Contribution in or after August 2010 subject to 2011/12 rules unless elect to change input period

32. State pensions and retirement Basic state pension To rise by greater of prices, earnings and 2.5% from 2011 Prices to be measured by CPI, not RPI from 2012 State pension age to rise to 66, probably from 2016 for men and 2020 for women Default retirement age Default retirement age of 65 to be phased out from April 2011 32

33. BUSINESS TAX

34. Corporation tax Main rate from April 2011: 27% 1% cuts thereafter to 24% from April 2014 Small profits rate from April 2011: 20% Effective marginal rate from April 2011: 28.75% Thresholds remain at 1994 levels: o £100,000 - £300,000 o £300,000 - £1.5m o Over £1.5m 34

35. Corporation tax rates: past and future 35

36. Capital and other allowances Reduction in capital allowances to help pay for the corporation tax cuts: Annual investment allowance cut to £25,000 – from £100,000 Main P & M rate of WDA cut to 18% – from 20% R&D reliefs: no changes to rates Changes from April 2012 Encourages accelerating investment before April 2012 36

37. Miscellaneous CPI to replace RPI o For indexation of benefits, tax credits and public sector pensions from April 2011 o Government will review use of CPI for taxes and duties Furnished holiday lets o Plans to repeal have now been scrapped, BUT o Review of regime to be undertaken: - Days available/let likely to increase - Treatment of losses to be tightened 37

38. CONSULTATIONS

39. Consultations The PAYE system Intellectual property Research and development expenditure Non-doms SDLT Managed service companies and IR35 Various investment and asset management issues Gift aid Plus – proposals for ‘Office of Tax Simplification’

40. Impact of Budget June decisions Change2011/122014/15 £bn VAT increase+12.1+13.45 Corporation tax cuts-0.5-4.1 Capital allowances + AIA cuts0+2.8 NICs increases-3.45-3.72 Personal allowance cuts/freeze-3.49-3.91 Total tax changes+6.25+8.23 Tax credit reforms/cuts+2.86+3.22 Total policy decisions+15.11+40.17

41. Emergency Budget 2010 This presentation is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this presentation. This presentation represents our understanding of law and HM Revenue & Customs practice as at 22 June 2010. 22 June 2010