Posted by Nick Day on 21 Jan 2013
2013 March Budget Summary
The Chancellor made his 2013 March Budget Statement on 20 March 2013 and announced the following headline measures:
The Personal Allowance which governs the amount of annual tax-free income that can be received by each individual will increase from £9,440 in the 2013-14 year to £10,000 in the 2014/15 year, and thereafter will be linked to the cost of living increases. Higher rate taxpayers will not benefit from the rate at which the 40% rate begins will be lowered accordingly.
The additional rate of income tax for those with an annual income of over £150,000 will be reduced from 50% to 45% for 2013-14 onwards.
A widely trailed new tax-free childcare scheme will be introduced from 2015. “Working families” will be entitled to claim 20% of childcare costs of up to £6,000 for each child under 12 years old.
The Inheritance Tax (IHT) nil rate band remains at £325,000. However, the lifetime limit for UK domiciled individuals making transfers to their non-UK domiciled spouses/civil partners will increase from £55,000 to £325,000. Non-UK domiciled individual will be able to elect to be treated as UK domiciled for IHT purposes only.
The capital gains tax relief available under the Seed Enterprise Investment Scheme (SEIS) has been extended to capital gains made in the 2013-14 and 2014-15 years but scaled back so that only 50% of the amount reinvested will qualify for relief.
The amount (the “Annual Allowance”) that can be contributed to the UK approved pension arrangements and qualify for tax relief will be reduced to £40,000 per year from 6 April 2014 onwards. The total tax-relievable pension contributions it is possible to make over an individual’s lifetime (the “Lifetime Allowance”) will be reduced to £1.25M from 6 April 2014.
There will be a cap introduced for tax reliefs that were previously uncapped for the 2013-14 year onwards, except for charitable giving, which will continue to be uncapped. In broad terms, the cap will be £50,000 or 25% of annual net income (after deducting pension/charitable contributions), whichever is greater. Loss relief claims that were previously unrestricted will be impacted.
“Expats” – Residence/Domicile
A UK Statutory Residence Test will be introduced from 6 April 2013 so that individuals are able to work out whether they are UK tax resident under a clear set of statutory rules, which replace the arcane web of HMRC guidance, practices, concessions and court cases that previously existed.
The concept of “Ordinary Residence” is abolished from 6 April 2013. “Overseas Work Days Relief” will still be available to non-domiciled individuals arriving in the UK in certain situations, and the rules relating to the “compliant offshore bank accounts” they need to set up to receive salary payments are being put on a proper legal footing.
The lifetime Inheritance Tax limit for UK domiciled individuals making transfers to their non-UK domiciled spouses/civil partners will increase from £55,000 to £325,000. Non-UK domiciled individual will be able to elect to be treated as UK domiciled for IHT purposes only.
The main rate of tax for companies will reduce from 24% to 23% from 1 April 2013, to 21% from 1 April 2014, and to 20% from 1 April 2015.
An “above the line” credit comes in from April 2013 to encourage Research & Development (R&D) activity by larger companies, which in broad terms will be 10% of qualifying R&D expenditure.
Global profits from qualifying patents will be subject to a reduced rate of tax from 1 April 2013, phased in over five years, and eventually reducing to 10%. These “patent box” rules will benefit companies who own patents registered by the UK Intellectual Property Office, the European Patent Office and/or similar patent offices within the European Economic Area.
A boon for businesses was the news that a new allowance from April 2014 will reduce National Insurance Contributions for employers by up to £2,000 per year. This will be claimed via the new Real Time Information (RTI) PAYE system, which itself goes live from April 2013 onwards.
Employers will be able to provide loans of up to £10,000 to each employee from 6 April 2014 onwards. The previous tax-free limit was £5,000.
The Government is pressing ahead with its scheme to offer tax relief to employees receiving company shares in their employer in exchange for giving up certain employment rights. These provisions will be in place from 1 September 2013 onwards.
In the 2013 March budget, the Government announce it will introduce additional taxation it has previously proposed relating to high-value residential UK properties where ownership is in the hands of “non-natural persons” such as companies. This will result in annual charges, increased stamp duty rates and capital gains tax charges for properties owned in this manner.
A General Anti-Abuse Rule (GAAR) will take effect when the 2013 Finance Bill receives Royal Assent, impacting arrangements from this date onwards.
Further legislation to attack perceived abuses of the Stamp Duty Land Tax (SDLT) sub-sale relief rules will be introduced.
Loans to Participators (shareholders) Legislation – this area of law is being broadened to catch avoidance planning where “value is extracted” from a close company (a company controlled by five or fewer shareholders) to a shareholder without a tax charge. The charge is normally 25% of the loan made by the company but is repaid once the loan to the shareholder has itself been repaid. Previously, the charge has been avoided by the use of intermediaries, and “bed and breakfasting” route whereby the shareholder loan is repaid and then another loan made. HMRC are attempting to put an end to this practice.
The UK has agreed to tax information exchange agreements with the Jersey, Guernsey and the Isle of Man, to help identify UK taxpayers who have avoided tax on investments deposited in these jurisdictions. Disclosure processes will be available to enable individuals to “come clean” with HMRC on a voluntary basis, similar to the processes already in place for those with undisclosed assets in Switzerland and Liechtenstein.
In good news for beer drinkers, the beer duty escalator is to be scrapped and beer duty is being cut by 1p.
As widely predicted, the scheduled fuel duty increase for September 2013 is cancelled.
Contact Tax Innovations abotu the 2013 March Budget
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- Non-Resident Landlords – UK Tax Update