Budget 2009:

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 The relief will start to be withdrawn for people with incomes over £150,000.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 more. 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• The personal income tax allowance (£6,475 in 2009/10) will be withdrawn at the rate of £1 for every £2 of income over £100,000 from 2010/11.