Posted by Tax Innovations on 27 Mar 2012

2012 Budget

Our alert cuts through all the detail and the incomprehensible figures and gives you the headline issues from the Budget on 21 March 2012. This is only intended as a brief summary of some of the headline issues but as ever, if you need advice on these points or any other measures announced in the Budget please contact us on 01962 856 990 or email nick.day@taxinnovations.com.

The issues we cover are:

Personal Tax 

The top rate of tax in the UK is reduced from 50% to 45% from April 2013 for those individuals with taxable income of more than £150,000 per year. The intention is to make the UK competitive with other large economies and start reversing Alistair Darling’s “temporary measure” introduced as Labour was on the verge of losing power in 2010.

The Personal Allowance for individuals is increased to £8,105 in 2012-13 and to £9,205 in 2013-14 meaning the tax-free limit is being increased at a faster rate than ever before, but higher rate taxpayers will see the basic rate tax band lowered accordingly to ensure they do not feel the benefit of this! The Age Allowance is to be frozen from April 2013 and then gradually phased out.

Child Benefit for those households where an individual has taxable income of between £50,000 and £60,000 will be withdrawn by way of a complex tax charge from January 2013 onwards. If annual income exceeds £60,000 no Child Benefit will be due. This may avoid the “cliff edge” issue but will mean added Tax Return complexity for hundreds of thousands of people.

Pension contributions were not attacked as was widely speculated, and so it is still possible to obtain tax relief on contributions at the highest rate of tax you pay.

A cap is to be introduced next year on the amount of tax reliefs an individual can claim each year. It will only apply to current reliefs that are unlimited and will not impact on Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT) claims. The provision appears to be aimed primarily at loss relief claims but little detail is available right now.

The Government will as previously advised press ahead with the new Statutory Residence Test (SRT) from April 2013. The concept of “Ordinary Residence” will cease but “Overseas Work Days Relief” on employment earnings for those working temporarily in the UK, which was always connected with a claim to be “Not Ordinarily Resident”, will continue in some form, to be announced. The previously announced reforms to the taxation of “Non-doms” will apply from 6 April 2012. If you hold a foreign currency bank account this will be taken outside the scope of UK capital gains tax from 6 April 2012 onwards.

Employment Tax  (back to top)

The limit for Enterprise Management Incentives (EMI) share option grants will increase significantly from £120,000 to £250,000 and gains made on exercise will be eligible for a 10% capital gains tax rate.

The Government continues to train its attention on “IR35” matters and what it sees as tax avoidance through the use of “one-man” Personal Service Companies. It is set to introduce a series of new measures to counter this.

Corporation and Business Tax (back to top)

To encourage growth and business, the main rate of Corporation Tax will fall gradually from the current 26% rate to 22% by April 2014. The rate for smaller businesses will continue to be 20%.

Consultation will take place with a view to allowing small unincorporated businesses to simplify their accounting/tax affairs, to include calculating profits by using the “cash basis” and simplifying claims relating to cars and homes. Disincorporation relief to allow small businesses to switch from trading via companies without penalty will also be considered.

General (back to top)

A General Anti-Abuse Rule (GAAR) is intended to be introduced in 2013 as the Government tries to separate out what it believes are unacceptable tax planning schemes from those it deems are acceptable. The challenge in terms of introducing this law will be to ensure those individuals who legitimately carry out reasonable tax planning are not penalised and are adequately protected from any “sledgehammer” like rules.

Stamp Duty Land Tax (SDLT) is increased from 5% to 7% for residential properties bought for more than £2M. This is part of the Government’s “we are all in this together” strategy to ensure the most wealthy share the pain of reducing the deficit. However, one wonders whether this is more of a political move to dampen down any negative comment surrounding the drop in the top rate of tax from 50% to 45%?

The zero rate of VAT is to be taken away from hot take-away food, food consumed on shared premises and some “sports”/nutrition drinks. The latter is ironic in London Olympics year!