Restricted reliefs

A key new announcement in Budget 2012 is that the unlimited availability of certain reliefs against income is to be capped with effect from April 2013.

The policy decision is reflected in a recent press release:

‘Some individuals on very high incomes have used reliefs to pay little or no tax, sometimes year after year. This Government believes it is not right that taxpayers with very high incomes should, year on year, pay little or no tax as a result of unlimited reliefs.

Other countries already restrict tax reliefs. For example, the US caps the income tax relief available for charitable donations.’

The outline proposal

The proposed cap is the greater of 25% of income or £50,000. This means an individual with an income of £250,000 in 2013/14 may only be able to offset £62,500 against their income. It is only set to apply to reliefs which are currently unlimited. The principal reliefs affected may include loss reliefs that can be claimed against total income, qualifying loan interest relief and reliefs for charitable giving.

Reliefs that are already capped such as pension tax relief, Enterprise and Seed Enterprise Investment Scheme income tax relief, Venture Capital Trusts and the Cultural Gifts Scheme are not affected.

This does provide some potential alternatives for the high income individual to consider.

Impact on charities

There is concern about the impact these proposals will have on charities. In response to this the Government has indicated that:

• the cap will not impact on the tax reclaimed by charities under the Gift Aid scheme and

• ‘it will explore with the charity sectors ways to ensure that this change does not significantly impact on charities which depend on large donations’.

What next?

Further details are expected to emerge over the summer on how the cap will be implemented and we will keep you informed of developments. Meanwhile, please do contact us if you consider that this will impact upon you, so that any relevant action points can be explored before the expected implementation date of 6 April 2013. Email enquiries@peplows.co.uk