The "earnings cap" for personal pension contributions
and occupational scheme benefits is set at £102,000 for 2004/05
(2003/04: £99,000). The maximum contributions for different
ages are set out in the table.
It is confirmed that the rules for tax-approved pension schemes
will change radically from 6 April 2006. The new limit will be based
on the funds available to buy benefits at the date of retirement,
rather than on contributions or on the benefits themselves. The
cap is to be set at £1.5m to start with, with set increases
up to £1.8m by 2010. Transitional rules will give some protection
to those who are over the limit at the outset. Anyone else who cashes
in a larger fund after that date will suffer a 55% clawback charge
on the excess, which can be taken (after tax) as a lump sum.A smaller
clawback applies if the excess is taken as a pension.
Individual Savings Accounts (ISAs)
The maximum amount which can be contributed to a tax-free ISA remains
£7,000 for 2004/05. It has been announced that this will fall
to £5,000 in 2006/07.
Venture Capital Trusts (VCTs)
From 6 April 2004, it will no longer be possible to defer the tax
charge on a capital gain by investing in new VCT shares. There will
still be income tax relief on up to £200,000 of new shares
(increased from £100,000 before 6.4.04), and the rate is increased
to 40% for the two years 2004/05 and 2005/06 to compensate for the
loss of CGT deferral. VCT shares remain exempt from tax on gains
VCTs get better income tax relief, but worse CGT relief
Enterprise Investment Scheme (EIS)
CGT deferral remains available for investment in new EIS shares.
The maximum limit for 20% income tax relief on investment is increased
to £200,000 (from £150,000) from 6 April 2004.
For some years, the 100% tax relief for investment in "British
films" has led not only to finance for the UK film business
but also to a separate tax-avoidance industry. Steps were taken
to close this down by restricting the tax relief available to "inactive
business partners" from 10 February 2004, and by introducing
"exit charges" on those whose tax schemes allowed them
to enjoy the 100% relief on costs, but walk away from any later
tax on income. This has led to a crisis among those who are actually
making British films, but the Government is determined to close
down the avoidance schemes. A new credit will instead be given directly
to producers of films costing up to £15m.