Chancellor George Osborne has backed down from imposing tax relief caps on charity giving for the wealthy – but aims to go ahead with other controversial proposals.
The Treasury outlined the proposals in a new consultation document Delivering a cap on income tax relief.
The proposals would limit a range of tax reliefs – including relief on losses claimed against an individual’s other income in the same tax year or total income in an earlier year – to £50,000 or 25% of general income, whichever is the greater.
The rules will take effect from the 2013/14 tax year onwards, but claims on any losses that occur after April 6, 2013 will be subject to the cap – even where the normal rules allow losses to be carried back and offset against income for 2012/13 or earlier tax years.
“Tax reliefs exist for good reasons, to promote activities such as business investment, but it is unfair that reliefs can be used without limit to reduce tax liabilities. This measure will increase effective tax rates and help ensure that those with the highest incomes pay a fairer share,” said a Treasury spokesman.
Tax experts complain the cap on reliefs may curb investment by entrepreneurs.
Lisa Macpherson, national director of Tax at accountants PKF, said: “This is an incredibly badly conceived idea. It has the potential to cause real pain for entrepreneurs as, in future, they may get a smaller refund on their losses or have to wait much longer to get tax relief.
“No entrepreneur sets out to make losses over the long term but the existing rules recognise that new businesses are especially vulnerable, particularly during a downturn. The owners of micro-businesses are unlikely to be affected because of the £50,000 limit, but entrepreneurs who make larger losses could easily lose out on tax refunds that could be vital to their financial survival.
“If the government really must press ahead with these proposals, it must at least consider raising the cap to somewhere north of £100,000 per annum so that fewer entrepreneurs are adversely affected by the proposals.”