Whitley Stimpson advises high earners to take note of HM Treasury’s plans to cap unlimited income tax relief

Jul 25, 2012

Leading accountancy firm Whitley Stimpson is advising high earners in Oxfordshire to consider how plans to cap unlimited income tax relief will affect them, and to prepare accordingly. HM Treasury and HMRC have just published details of how the proposed cap on unlimited income tax relief will take shape. Set to be introduced from 6th April 2013, the tough new law will prevent those on higher incomes from taking advantage of favourable tax reliefs.

“With a good deal of recent controversy surrounding the tax relief available to high earners, ministers have acted swiftly to clamp down on what they perceive as any unfair advantages available to those in the higher income bracket,” explains Owen Kyffin, Tax Partner, Whitley Stimpson. “The new law is intended to help to ensure that a fair rate of tax is applied to this bracket, and prevent the average tax payer from footing the bill for tax avoidance scams, but may still deny relief where an individual has suffered a genuine business loss.”

The new cap will be set at the greater of £50,000 or 25% of an individual’s income, and there will be a separate cap for each year in which the relief in question can be claimed. While reducing the scope for those trying to exploit tax reliefs to avoid paying tax on high earnings, HM Treasury is keen to assert that there will still be generous tax reliefs available to individuals investing in small businesses. Similarly, charitable donations are now excluded from the cap.

The tax reliefs that will be capped are: Trade Loss Relief against general income; Early Trade Losses Relief; Post-cessation Trade Relief; Property Loss Relief against general income; Post-cessation Property Relief; Employment Loss Relief; Former Employees Deduction for Liabilities; Share Loss Relief; Losses on Deeply Discounted Securities; and Qualifying Loan Interest.

 “Key aspects to consider in the run-up to April 2013 include loss reliefs and loan interest,” explains Owen. “If a loss in excess of £50,000 could arise in the current tax year, it may be possible to ensure that full relief against other income is obtained. Additionally, those who have taken out personal loans to invest in or lend to a business should consider restructuring these loans, where possible, and individuals who have made investments in unquoted trading companies may need to review these to see if any are potentially standing at a loss which might be triggered before the change in the rules.”

“There is still time to feed back thoughts and concerns surrounding the new proposals to HM Treasury,” continues Owen. “The government has invited responses by 5th October 2012, so that individuals who may be affected by the cap can express their views.”

Individuals concerned that they could be adversely affected by the new regulation or who require further clarification on how best to prepare for it should contact Whitley Stimpson’s tax expert Owen Kyffin on 01295 270200.