Part II Developments in the Member States

recurrent property taxes in the form of national domestic rates on business properties and council tax paid by
owner-occupiers and tenants on the value of their dwellings) contribute substantially to the United Kingdom's
U relatively high tax burden on capital as their bases are not captured in the capital base of the ITR. Taxes on capital
n are amongst the highest in the EU-27, even when accounting for the statistical break due to 2008 capital levies.
i Revenues from environmental taxes are relatively stable at around 2.5 % of GDP despite the evolution of the
t collection of customs duty on mineral oils in recent years whose level has risen slower than GDP since 2001.
e
d Current topics and prospects; policy orientation
The standard CIT rate has been gradually reduced by 4 percentage point to 24 % and will be further reduced in
K stages to 22 % by 2014. The small profits rate has also been reduced to 20 %. The standard VAT rate was
increased by 2.5 percentage points to 20 % in 2011 and several environmentally-related taxes were increased in
i recent years such as air passenger duty or landfill taxes. The system of capital gains tax has also been reformed. A
n bank levy was introduced in January 2011 based on bank balance sheets. The full rate of 0.088 % (previously
g 0.075 % from May to December 2011) will increase to 0.105 % since January 2013. Finally, specific efforts have
been made to simplify taxes with the establishment of an independent office of tax simplification, various public
d consultations on tax changes and on the possible abolition of a series of tax reliefs that are not in line with a fair
o and simple tax system or that failed to meet their policy objective.
m
Main features of the tax structure
Personal income tax
The basic and higher rates of income tax are 20 % and 40 % respectively. The basic rate limit is lowered from GBP
35 000 in 2011-2012 to GBP 34 370 in 2012-2013 and the personal allowance is increased to GBP 8 105 for 2012-
2013. Since the 2010-11 tax year, this personal allowance is reduced when the income is above GBP 100 000 - by
GBP 1 for every GBP 2 of income above the GBP 100 000 limit. This reduction applies irrespective of age. A
higher tax rate (50 %, to be reduced to 45 % since April 2013) applies to annual incomes above GBP 150 000 since
2010. Higher personal allowances are available for those aged 65 and over (GBP 10 500). Two tax credits are
available; the child tax credit (CTC) and the working tax credit (WTC) aimed at low income working adults.

The capital gains tax rates for gains realised after June 2010 are 18 % and 28 % depending on the individual’s total
taxable income. The annual exempt amount is GBP 10 600 in 2011-2012 and 2012-2013. A 10 % rate also applies
to gains qualifying for entrepreneurs relief. For dividends three rates apply: 10 % starting rate, 32.5 % upper rate
and an additional rate of 42.5 %.

Since April 2011 the annual allowance for tax-privileged pension saving is reduced from its current level of
GBP 255 000 to GBP 50 000. The life time allowance for tax-privileged pension saving is GBP 1.5 million
(reduced from GBP 1.8 million in 2010-2011).

The inheritance tax allowance is frozen at its April 2009 level of GBP 325 000 for individuals until 2014-2015.
Tax is payable at 40 % above this threshold.

Corporate taxation
Corporate income tax is charged at two rates; the main rate and the small profits rate (for profits up to GBP 300
000). Marginal relief is available on profits between GBP 300 000 and GBP 1.5 million. The main rate of
corporate income tax is 24 % since April 2012. Further phased reductions in the rate are planned bringing it at
23 % in 2013 and 22 % in 2014. The small profits rate is 20 % since April 2011. As part of the reform the capital
allowance rate on plant and machinery is reduced from 20 % to 18 % and the special rate from 10 % to 8 % from
April 2012. The maximum amount of the Annual Investment Allowance for business investment in most plant and
machinery will be reduced from GBP 100 000 to GBP 25 000 a year from April 2012. An R&D tax credit is also
available with two schemes in place claiming relief depending on the size of the company or organisation. The rate
of tax relief for investment by SMEs has been increased to 200 % in April 2011.

162 Taxation trends in the European Union