High earners were dealt a double blow in Alistair Darling’s Budget, which raised the highest rate of income tax to 50 per cent and curbed the amount of tax relief they can claim on pension contributions.

In what the accountants and advisers quickly dubbed the “Robin Hood Budget”, Darling also said people who try to evade paying tax would be named and shamed by the Revenue.

Other topics included were an increase to the Individual Savings Account annual limit to £10,200, an extension of the Stamp Duty Holiday for properties worth £175,000 or less and the ability to carry back investment losses to previous years.

John Whiting, tax partner at PricewaterhouseCoopers, answers your questions on what it means for you.

Mr Whiting has been a tax partner with PricewaterhouseCoopers since 1984, working on most areas of taxation including many years of involvement with Employment taxation.

Mr Whiting is a former President of the Chartered Institute of Taxation and chairs their Management of Taxes Committee.

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Due to the high volume of questions we were unable to answer all individually, but tried to ensure that all major themes were covered

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Can those earning over £150,000 a year still pay in the maximum pension allowance of £245,000 and receive 40 per cent tax relief if they have paid the maximum allowance in previous years (so are just following their normal pattern)? If not, is the new limit for those earning more than £150,000 a year limited to £20,000 a year?

Aashley Naylor

That’s a good question and you are not the first to pose it - in many ways the honest answer is that we can’t be sure until we see the detail rules - on which there will be consultation, we understand, during the summer. It sounds as if you would get a mix of relief. Suppose you were earning £250,000 and put in the maximum £245,000. If the new rules applied (and they don’t come inuntil 2011 of course) then I think you’d get relief on that amount in various tranches - the top slice of £65,000 at 20 per cent, the next slice of £30,000 at 30 per cent, then the main chunk (from £150,000 down to £44,000 or so) at 40 per cent, then most of the rest at 20 per cent, with some getting no relief due to the personal allowance (which you would still get as your taxable income would be minimal). And any major investments you make in the coming two years will have to be aware of the anti-forestalling measures.

JW

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I’m a Professional in the 40 per cent tax band. I’m entitled to a company car, but I take the equivalent cash as part of my car allowance. I have been contemplating getting a new car. Is there any thing in the new Budget which will be helpful to me when making the decision whether to choose the company car or buy my own car?

Saif Haque, London

There were no immediate changes. There had been speculation that the mileage allowance of 40p a mile (which helps you with your own car) would change, but that is stayiing where it is for the moment. There are changes in the pipeline for company cars for 2011 onwards. The lower limit for CO2 emissions comes down from 135g/km now (which gives a benefit of 15 per cent) to 130g/km (for 2010/11) to 125 g/km for from April 2011. Also the limit of £80,000, if you are contemplating a very expensive car, goes from 2011 as well.

JW

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Do we have any more details as to how the ‘top up’ credit insurance scheme will work? This is a major issue for those us supplying into industry and the Chancellor barely mentioned it.

Philip Parkin

The main Budget document (the ’Red Book’ on pages 74 & 75 - para 4.14) sets out some details. It talks about companies being able to purchase 6 months’ top up credit insurance from May to December this year. This is being provided by the private sector with government backing. The amount of cover available is the amount that restores the original cover, or £1m if lower.

JW

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Did anything come out of the Budget that might affect people who want to put money or assets into trust on behalf of children? Was there anything new to come out?

Tony Esmond, Ealing

If you were thinking of the Child Trust Fund, then the extra that the Chancellor talked about seemd to be only in respect of disabled children. If you are thinking about a general trust, then the trust rate (assuming the income isn’t taxed on the parents in any event) goes up in line with the new 50 per cent rate - so this isn’t a route to sidestep the new rules for parents with high incomes, it seems.

JW

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Dear John, When house prices start to stabilise (I accept that this could be anything from 6 months to 3 years), I am thinking of purchasing a holiday home to let out for much of the year to cover a 10 year mortgage (I will have a 40 per cent deposit). Was there anything in the Budget relating to holiday lets that I should be aware of? Kind regards,

Mike Sanders, unknown

Yes - in that the rules on furnished holiday lettings are to be abolished from next April; in the meantime the rules can apply - but only for 11 months in effect - to properties throughout the EEA. I suspect that the abolition is driven by the need to make the rules EC-compliant, ie they can’t just apply to the UK. So the choice is to expand them to cover all the EU at least or abolish them. Clearly the decision is to abolish, but to give a short run in to give people time to adjust.

The result is that the income from holiday lets will be taxed in the same way as other rental income (so not ’earned ’ income) and investment in such properties will no longer be eligible for CGT rollover relief.

JW

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I am being made redundant in May 2009. If there is a change in tax relief on redundancy pay will I qualify at the new rate?

Andrew W, Hull

If you are thinking about the long-established £30,000 limit for tax-free redundancy pay, that stays fixed despite it being more than time for it to increase. The Chancellor did announce an increase in the amount of statutory redundancy pay to a weekly rate of £380; there was no time set for this and so we assume it applies from now.

JW

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I am 60 years old and look after my grandchildren a couple of days a week. Can you explain the measures that referred to this in the Budget?

Tony, Kent.

This was the measure that talked about giving , in effect, state pension credit for doing childcare. What is means is that if someone below state pension age - as you are - does care for grandchildren aged 12 or younger for 20 hours or more a week, then that caring will count as work for national insurance purposes - so you would, if you do enough weeks in a year, get that year to count for further state pension if you are not already at the maximum entitlement. This only starts from April 2011, though.

JW

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Please can you clarify the position on new restrictions on higher-rate relief on pension contributions for those earning more than 150,000.I understand higher rate relief will no longer be available. When does this new ceiling come into effect and are there any details available yet? Thanks

David Burnside, London

The restriction comes in from April 2011, but there will be some anti-forestalling measures to stop people doing much enhanced contributions over the next two years.

The rules talk about relief being available at only 20 per cent for income above £180,000, and tapered between 40 per cent and 20 per cent relief between £150,000 and £180,000. What this all seems to mean (but this is not guaranteed as the rules are yet to emerge) is that if your income is (say) £200,000 and you put:

(a) £20,000 into your pensions fund, you get £4,000 tax relief

(b) £50,000 in, you get relief of £13,000 - ie the same £4k plus £30k @ 30 per cent effective

(c) £60,000 in, then the extra £10,000 gets you £4,000 further relief

The results are a bit odd in many ways - someone on £250,000 putting away £50,000 gets 20 per cent relief on the whole sum; someone on £100,000 putting away the same sum gets the full 40 per cent relief.

JW

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Dear John, What effect will the budget have on the UK housing market and in particular on house prices in the south east (London). House prices appear to be wobbling along what most would say is the trough, and bottoming out, but will the Budget and the extent of the UK’s Budget deficit have any impact? Me and my partner are first time buyers, so to us, falling house prices are in some respect good news as the fall has brought this into line with our affordability. I look forward to receiving your reply,

Djuro Rnic, London

Very good question - the stamp duty holiday is meant to help house prices at the lower end of the market but may not help much in the London area as it only operates to £175,000. There may in due course be more people looking at property as investments as the restrictions on pension investments and the 50 per cent tax rate bite.

JW

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How soon can people aged 50 or over top up this year’s cash ISA from 3600 to the new limit of 5100? Can the additional £1500 allowance be moved as early as today?

Bob Drake, Swansea

It’s available to those aged 50 and over from 6 October - so you can put in the extra for the year from that time. It’s worth stressing that from that time you can put in the whole of the extra allowance if you wish - ie the £1500 cash or £3000 overall. You don’t have to apportion the limit for the half year.

JW

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I am about to take early retirement and redundancy from my present employers. My current salary in not in excess of £150,000 but I do want to take a lump sum from my pension on retirement of £125,000 approx. Will the new tax levels apply, as I thought this would be tax free? Regards,

K Moore, Surrey

Your lump sum from your pension scheme, provided it’s within the usual limits, won’t be taxed - nothing in the Budget changes will affect the situation you describe.

JW

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I have a question arising from the budget changes. If I earn £120,000 per year and contribute, say, £70,000 of these earnings to my personal pension fund, would I lose any of my personal allowance?

Mike Piggin, TPA Solutions

The clawback of personal allowances starts when your ’adjusted net income’ is above £100,000. The ’ANI’ is your total income subject to income tax (so including investment income) but after deducting pension contributions and gift aid, and indeed losses from a business.

JW

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Could you please tell me precisely how the provision to curb the personal allowance for someone earning over £100,000 works? And does it apply only to earnings from employment or would income from a non-state pension be included for this purpose? Thanks very much,

Harry, London

The clawback will work by reducing your personal allowance by £1 for every £2 that your taxable income is over £100,000. So if your income is (say) £105,000, your allowance would be reduced by £2,500 - on current figures that means the allowance of £6475 comes down to £3975. And income for these purposes includes pensions, including the state pension.

JW

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What help is there for single parents who can’t work? I have four children of which two of them have special needs and I can’t claim dla for them although I get low mobility for one. I cant work as they need my time. Is there anything in the Budget for me?

Lorraine, Tyne and Wear

There wasn’t a lot of immediate help to you in the Budget. That said, the amounts you get in child benefit would have increased from January as a result of the pre-budget report. There are some small extras in the Budget such as more money for your children’s Child Trust Fund but the extra for CTF is dependant on them being elegible for the disabled living allowance, unfortunately.

JW

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Will pension contributions made through salary sacrifce schemes be affected by the Budget?

Ivy Lam, London

This depends on your level of income, I think. The plan to restrict tax relief from 2011 for incomes of over £150,000 contains measures to prevent sidestepping through salary sacrifice, we understand. But salary sacrifice does still offer tax efficiencies for those on incomes below the cut off of £150,000.

JW

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Last year’s budget gave a non-repayable tax credit to individuals owning less than 10 per cent of a non-UK resident company. We were told that this rule would be extended to those owning over 10 per cent of a non-UK resident company in 2009. Is that measure in the budget?

Bill Fawkner-Corbett, unknown

Yes, this was announced inthe Budget Notes - see BN 21 - with effect from 22 April 2009. It is hedged round (inevitably) with some conditions and anti-avoidance, the key one being that the company has to be resident in a country that we have a normal double tax treatuy with. There are also measures to stop ’conduit’ planning - routing dividends around to to benefit.

JW

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