Tax Expenditures and Ready Reckoners

           

T1.5 - Tax expenditures and structural reliefs (1), (2)
Amounts: £ million
	Estimated cost for
	2001-02	2002-03
Tax Expenditures
Income tax
Relief for:
Approved pension schemes (3) (4)	13,000*	13,700*
Approved profit sharing schemes (5)	190*	100*
Share incentive plan (6) (7)	40*	150*
Approved savings-related share option schemes (6) (8) (9)	240*	160*
Personal Equity Plans (10)	700*	575*
Individual Savings Accounts	725*	825*
Venture Capital Trusts (11)	60*	35*
Enterprise Investment Scheme (12)	260*	240*
Professional subscriptions, (13)	50*	50*
Rent-a-room	100	100
Exemption of:
First £30,000 of payments on termination of
employment	850*	850*
Interest on National Savings Certificates
including index-linked Certificates	170*	160*
Tax Exempt Special Savings Account interest (14)	150*	100*
Premium Bond prizes	110*	90*
Income of charities (15)	850*	900*
Foreign service allowance paid to Crown
Servants abroad	70*	80*
First £8,000 of reimbursed relocation packages
provided by employers	300*	300*
Tax Credits:
Life assurance premiums (for contracts made
prior to 14 March 1984) (16)	95	85
Children's Tax Credit	2,100	2,300
Working Families' Tax Credit	5,500	6,300
Disabled Person's Tax Credit	130	160
Income Tax and Corporation Tax
Film Tax Relief (17)	240	300
Corporation Tax
R&D Tax Credits (18)	150*	600*
National Insurance Contributions
Relief for:
Approved profit sharing schemes (19)	130*	70*
Share incentive plan (19)	20*	90*
Approved savings-related share option schemes (19)	160*	110*
Employer contributions to approved pensions schemes (20)	4,800*	4,900*
Capital gains tax
Exemption of gains arising on disposal of only or
main residence (21)	6,000	11,000
Retirement relief	70*	30*
Inheritance tax
Relief for:
Agricultural property	110*	120*
Business property	110*	90*
Exemption of transfers to charities on death	340*	330*
Structural Reliefs
Income tax
Personal allowance	34,800	35,900
National insurance contributions
Contracted-out rebate occupational schemes:
Rebates deducted at source by employers	6,660*	7,470*
Rebates paid by the Contributions Agency
direct to the scheme	270*	310*
Personal pensions	2,830*	3,770*
Income tax and corporation tax
Double taxation relief (22)	7,000*	7,000*
Corporation tax
Reduced rate of corporation tax on policy holders'
fraction of profits	350*	150*
Reliefs with Tax Expenditure and Structural Components
Income tax
Age-related allowances (23)	1,400	1,500
Exemption of:
British government securities where owner not
ordinarily resident in the United Kingdom (24)	750*	750*
Child benefit (including one parent benefit) (25)	880*	920*
Long-term incapacity benefit (26)	140*	170*
Industrial disablement benefits	90*	80*
Attendance allowance	250*	260*
Disability living allowance	460*	460*
War disablement benefits	90*	90*
War widows pension	50*	60*
National insurance contributions
Reduced contributions for self-employed not
attributable to reduced benefit eligibility (constant
cost basis)	2,100	1,700
Income tax and corporation tax
Capital allowances(27)	16,900*	17,700
Of which:
First year allowances for SMEs	230*	400*
First year allowances for small enterprises for information
and communication technology	70*	130*
Enhanced capital allowances for energy saving
technology	90*	90*
Accelerated capital allowances for
Enterprise Zones	100*	100*
Corporation tax
Small companies' reduced rate of corporation tax	1,900	2,000
Starting rate of corporation tax (28)	160	350
Exemption for gains on substantial shareholdings	0	170
Capital gains tax
Indexation allowance and rebasing to March
1982 (29)	300	230
Taper relief	530*	600*
Exemption of:
Annual exempt amount (half of the individuals'
exemption for trustees)	1,050*	750*
Gains accrued but unrealised at death (30)	800*	550*
Petroleum revenue tax (31)
Uplift on qualifying expenditure	180	150
Oil allowance	550	450
Safeguard: a protection for return on capital cost	275	180
Tariff receipts allowance	50	45
Exemption for gas sold to British Gas under
pre-July 1975 contracts	210	120
Inheritance tax
Nil rate band for chargeable transfers not
exceeding the threshold	7,400*	8,300*
Exemption of transfers on death to surviving
spouses (32)	1,400*	1,400*
Stamp duties
Exemption of transfers of land and property
where the consideration does not exceed the £60,000
threshold (33)	160*	150*
Exemption of transfers in designated disadvantaged
Wards where the considerration does not exceed
£150,000 (33)	10*	70*
* These figures are particularly tentative and subject to a wide margin of error.

Footnotes

1. These figures fall outside the scope of National Statistics.
2. Costs are on an accruals basis unless otherwise specified and only reliefs with an estimated cost of at least £50 million are included. The costs of the personal income tax allowances do not cover individuals who are not on Inland Revenue records because their income is below the tax threshold.
3. The baseline for calculation is unapproved schemes. The figure is the sum of the front-end relief on contributions plus the relief on the investment income of funds, net of the tax paid on current pension payments. Relief on capital gains made by funds is not included, due to lack of information about duration of holdings.
4. The cost of tax relief for employers' contributions is included on the basis that under present arrangements employers' contributions are not taxable as a benefit in kind of the employee.
5. The costs take into account that tax relief is denied where the participants sell the shares within three years of the date of appropriation.
6. Since 6 April 1999 National Insurance has been payable by both employer and employee on the gains arising when share options are exercised outside an Inland Revenue approved scheme (or are cancelled or assigned) and where the shares or the option are readily convertible into cash.
7. The Share incentive plan, formally known as the all-employee share ownership plan, was introduced in Finance Act 2000.
8. The costs take into account the partial offset provided by liability to capital gains tax arising from disposals of shares acquired under the scheme.
9. Excludes the cost of the tax-free bonus or interest received under a SAYE contract.
10. Includes the cost of exempting gains within Personal Equity Plans (PEPs) from capital gains tax (CGT). No subscriptions may be made to PEPs since 5 April 1999, but savers holding PEPs can continue holding them under current rules.
11. Includes the CGT costs of deferral reliefs and exempting gains from tax.
12. The figure includes the CGT cost of deferral relief.
13. Allowable under S201 ICTA 1988.
14. No new Tax Exempt Special Savings Accounts (TESSAs) have been taken out since 5 April 1999, but those taken out up to that date are able to run their full five year course.
15. These figures comprise:
    i. the total sum paid to charities, certain heritage bodies and museums, and scientific research associations in respect of: tax credits on dividends and income tax deducted at source from other investment income; payments under deeds of covenant; and donations under the Gift Aid scheme and the cost of the of payroll giving sceme. Information is not available about income received by these bodies without deduction of tax, and no allowance in the figures is made for this; and
    ii. an estimate of the higher rate relief received by the payers of covenanted sums and donations under Gift Aid.
16. Including the cost of deductions at source for non-taxpayers.
17. 100% write-off of qualifying production and acquisition expenditure is allowable under S.42 Finance (No. 2) Act 1992 and S.48 Finance (No. 2) Act 1997.
18. R &D tax credits were introduced for SME companies for accounting periods ending on or after 1 April 2000. Credits were introduced for all other companies for accounting periods on or after 1 April 2002.
19. Since 6 April 1999 National Insurance has been payable by both employer and employee on the gains arising when share options are exercised outside an Inland Revenue approved scheme (or are cancelled or assigned) and where the shares or the options are readily converted into cash.
20. The baseline for the calculation is employer contributions to unapproved pension schemes.
21. Calculated on the assumption that there would be no relief for gains when disposal proceeds were applied to the purchase of another house. The costs quoted do not represent the yield from abolition of the relief. Consequential effects on the housing market would substantially reduce the yield.
22. Based on provisional Corporation Tax assessment data for accounting periods ending in 2000-01 and the results of the 2000-01 Survey of Personal Incomes.
23. These figures represent the cost of the excess of the age-related personal allowance over the corresponding allowances for non-aged taxpayers. They include £60 million in 2002-03 and £70 million in 2003-04 for the cost of the higher age-related allowances for those aged 75 and over.
24. Taxed at the lower rate from 1996-97.
25. The figures assume that Child Benefit is paid to the mother or lone father.
26. Incapacity benefit replaced invalidity benefit and sickness benefit from April 1995. Benefit for new claimants after that date is taxable, except for benefit received in the first twenty-eight weeks of incapacity. Incapacity benefit paid to existing claimants at April 1995 remains exempt.
27. The figures for capital allowances are net of balancing charges. They include writing down and other allowances.
    i. First year allowances for expenditure by small and medium sized enterprises (SMEs) on plant and machinery are available for expenditure incurred on or after 2 July 1997.
    ii. 100 per cent first year allowances available to small enterprises investing in information and communication from 1 April 2000 to 31 March 2003.
    iii. 100 per cent first year allowances available for certain energy saving investments from April 2001.
    
28. The new starting rate for corporation tax applied from 1 April 2000.
29. The estimated costs relate to gains of individuals and trustees only. Company gains are not included because of estimation difficulties.
30. These estimates assume deferral relief on transfer of assets between spouses would be available.
31. The figures are net of any consequential effect on corporation tax and represent the effect on calendar year accruals in 2001and 2002. The cost of all types of expenditure relief (i.e. capital expenditure, including uplift, operating expenditure and exploration and appraisal expenditure) is £1,600 million in 2001-02 and £1,300 million in 2002-03. These figures reflect the fact that, in the case of petroleum revenue tax, no distinction is made between revenue and capital.
32. These costs are in respect only of transfers for which an account is submitted to the Capital Taxes Office.
33. The threshold does not apply to transfers of shares.

Notes on the table 1.5

1. 1. Table T1.5 shows the estimated costs of tax allowances and reliefs for 2001-02 and 2002-03. Only reliefs whose cost is £50m or more are included here. Reliefs whose cost is below £50m, or for which insufficient data exist upon which to base any reasonable estimates, are included in the Table B.1 and Table B.2.
   
   
2. The effect of some tax reliefs is to help or encourage particular types of individuals, activities or products. Such reliefs are often an alternative to public expenditure, and have similar effects. They are therefore called 'tax expenditures'. Other reliefs serve a different purpose. They may, for example, allow for the costs incurred in generating income, or reflect the broad objectives of the tax, or be designed to simplify compliance or administration. Such reliefs are called 'structural reliefs'.
   
   
3. Some reliefs cannot be classified as either a tax expenditure or a structural relief, because they combine elements of both. For example, capital allowances give relief for the depreciation of most business assets in arriving at taxable profits - a structural relief - but where the allowances exceed true economic depreciation there is an element of accelerated relief - a tax expenditure.
   
   
4. All costs, except where specifically referred to in the footnotes, are the effects on the tax liabilities for each year, not receipts in each year. The classification of reliefs as tax expenditures, structural reliefs, and those with elements of both is broadbrush, and the distinction between tax expenditures and structural reliefs in particular is not always straightforward.
   
   
5. In interpreting the figures, the following considerations should be borne in mind:
   
   
   1. each relief is costed separately: the combined cost of a number of reliefs may differ significantly from the sum of the figures for the individual reliefs;
      
      
   2. the estimates do not allow for any behavioural changes as a result of the reliefs, i.e. they represent the reduction in tax liabilities from the existence of the relief, and cannot generally be interpreted as the yield from withdrawing it. In practice withdrawing a relief - the exemption from capital gains tax on the sale of owner-occupied houses is a good example - would often result in significant changes in taxpayers' behaviour and might require changes to other reliefs;
      
      
   3. the costs of the personal income tax allowances do not cover individuals who are not on Inland Revenue records because their income is below the tax threshold.

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