Granny tax, pasty tax and fuel fiasco has over shadowed what I consider to have the most far reaching impact on how our income tax system operates.
At present individuals can offset almost unlimited amount against income to arrive at income liable to income tax. This results in an individual pays not tax at all even if his total earnings are in millions of pounds.
This is likely to change from 6 April 2013 when a cap would be placed on how much can be offset against income to arrive at income for tax purposes. The cap will apply only to reliefs which are currently unlimited. And will be set at 25 per cent of income or £50,000, whichever is greater.
The reliefs likely to be affected are:
- loss reliefs claimable against total income;
- qualifying loan interest reliefs;
- reliefs for charitable donations; and
- miscellaneous small reliefs which are currently uncapped.
Some of the reliefs not likely to be affected are:
- Reliefs for double taxation such as foreign and dividend tax credits and notional tax on life insurance gains.
- Reliefs that are already capped such as pension tax relief, front-end Enterprise and Seed Enterprise Investment Scheme income tax relief, Venture Capital Trusts and the Cultural Gift Scheme.
- Deductions that are allowed against specific source to arrive at income liable to tax;
- The new business investment incentive for non-domiciled individuals who are resident in the UK for tax purposes (this relief is against specific foreign income brought to the UK;
- The income tax reclaimed by charities under the Gift Aid scheme;
The detailed HM Revenue/Treasury press release has more information and it is available exclusively from this blog: