Welcome to our Budget newsletter. This newsletter aims to summarise the main measures that affect our clients. If you need further assistance just let us know.
We are committed to ensuring all our clients don’t pay a penny more in tax than is necessary. Please contact us for advice in your own specific circumstances. We’re here to help!
Table Of Contents
- Savings and Investments
- Capital Taxes
- Business Tax
A source of complexity for older taxpayers is the application and withdrawal of age-related allowances, which are currently given when the taxpayer reaches age 65. These age-related allowances are withdrawn when the taxpayer’s total income exceeds £25,400 (for 2012/13).
From 6 April 2013 those who reach age 65 on or after that date will not receive an age-related allowance, but will instead be entitled to the standard personal allowance of £9,205. This allowance is expected to rise to £10,000 in April 2014 or 2015. The existing age allowances given to people born before 6 April 1948, will be frozen at current rates as shown below.
Personal allowances for 2012/13…
- 65-74: £10,500 (2013/14 – £10,500)
- 75 and over: £10,660 (2013/14 – £10,660)
- Minimum married couples allowance*: £2,960 (2013/14 – TBA)
- Maximum married couples allowance*: £7,705 (2013/14 – TBA)
- Blind person’s allowance: £2,100 (2013/14 – TBA)
- Income limit for allowances for age related allowances: £25,400 (2013/14 – TBA)
- Income limit for standard allowances: £100,000 (2013/14 – £100,000)
* given where one partner was born before 6 /4/1935, as 10% reduction in tax.
Income Tax Rates
The reduction in the 40% threshold is balanced by the increase in personal allowance by £630. This means that in 2011/12 you start to pay 40% tax when your total income before allowances exceeds £42,475. In 2012/13 the 40% tax threshold is set at exactly the same amount: £42,475, before deduction of personal allowances. You can increase your own personal 40% threshold, by making donations under Gift Aid or paying personal pension contributions in the tax year.
Rates for 2012/13
- Savings rate* (10%) – 0 to £2,710
- Basic rate (20%) – 0 to £34,370
- Higher rate (40%) – £34,371 to £150,000
- Additional rate (50%) – over £150,000
* Only applies if non savings income is below this amount.
The rate on dividends remains at 10% for basic rate taxpayers, 32.5% for higher rate and 42.5% for additional rate. All come with a 10% tax credit.
Rates for 2013/14
- Savings rate* (10%) – 0 to £2,770 (estimate)
- Basic rate (20%) – 0 to £32,245
- Higher rate (40%) – £32,246 to £150,000
- Additional rate (45%) – over £150,000
* Only applies if non savings income is below this amount
The rate on dividends will 10% for basic rate taxpayers, 32.5% for higher rate and 37.5% for additional rate. All come with a 10% tax credit.
The Chancellor listened to reason and has decided to taper the withdrawal of child benefit where the higher earner’s net income (after losses but before allowances), exceeds £50,000. For every £100 of income over £50,000, a tax charge will apply equivalent to 1% of the child benefit received by the family. This will lead to the complete withdrawal of child benefit at £60,000 of net income. This tax charge is to apply from 1 January 2013, and will be collected through PAYE and self-assessment from the higher earning partner in the family.
If you, or your partner, are currently in receipt of child benefit you don’t have to do anything now. HMRC will be writing to all those affected by this change later in 2012. However, please discuss with us how you could re-arrange the distribution of income within your family, to reduce the affect of the withdrawal of child benefit. Any action in this area should be taken as soon as possible to ensure the new arrangements are in place for the full tax year 2012/13.
Child Tax Credit
- Family element – £545 (2011/12 – £545)
- First income threshold – £15,860 (2011/12 – £15,860)
- Second income threshold – withdrawn (2011/12 – £40,000)
Working Tax Credit
- Basic element – £1,920 (2011/12 – £1,920)
- Couple and lone parent £1,950 (2011/12 – £1,950)
- 30 hour element – £790 (2011/12 – £790)
- Childcare element: Maximum costs for one child – £175 per week (2011/12 – £175 per week)
- Maximum cost for all children – £300 per week (2011/12 – £300 per week)
- Percentage of costs covered – 70% (2011/12 – 70%)
- First income threshold – £6,420 (2011/12 – £6,420)
- Withdrawal rate – 41% (2011/12 – 41%)
- Income rise disregard – £10,000 (2011/12 – £10,000)
- Income fall disregard – £2,500 (2011/12 – N/A)
The income disregard provides a buffer for changes in income, so overpayments of tax credits do not arise where income varies within this threshold year on year. This affects families with fluctuating incomes, such as the self-employed. If you are in this position you need to finalise your profit figures as close to the tax year end as possible and provide those figures to the Tax Credits office without delay.
There are also changes to the tax credit rules from April 2012, which affect the number of hours the adults in the family must work to qualify for working tax credits. Lone parents are not affected by these changes.
Cap on Tax Reliefs
Savings and Investments
Enterprise Investment Schemes
- Rate of income tax relief: SEIS – 50%, EIS – 30%
- Annual maximum investment qualifying for income tax relief: SEIS – £100,000, EIS – £1,000,000
- Capital gains tax relief on investment: SEIS – 18% or 28%, EIS – deferred relief
Both the company and the investor have to qualify in order to receive tax relief under SEIS or EIS. The rules for both schemes are very complicated, so please talk to us before deciding to use either scheme.
Each individual has a personal annual allowance of £50,000, plus unused annual allowance brought forward from the previous three tax years. If the value of the contributions made to the pension scheme exceed the taxpayer’s annual allowance, an annual allowance tax charge applies on the excess contributions, set at the taxpayer’s highest rate of income tax.
- Annual allowance: 2012/13 – £50,000 (2011/12 – £50,000)
- Lifetime Allowance: 2012/13 – £1,500,000 (2011/12 – £1,800,000)
Independent Savings Accounts (ISAs)
- Overall limit – £11,280
- Cash up to – £5,640
- Balance in stocks and shares up to – £11,280
For those aged 16 & 17:
- Overall limit – £5,640
- Cash up to – £5,640
- Balance in stocks and shares up to – nil
For Junior ISA:
- Overall limit – £3,600
- Cash up to – £3,600
- Balance in stocks and shares up to – £3,600
The rates for 2012/13 are…
- Annual exemption – £10,600
- Annual exemption for most trustees – £5,300
- Rate for gains in basic rate band – 18%
- Rate for gains above basic rate band – 28%
- Rate for gains subject to entrepreneurs’ relief – 10%
- Lifetime limit for entrepreneurs’ relief – £10,000,000
The limits and rates for 2012/13 are…
- Nil rate band: £325,000 (2011/12 – £325,000)
- Rate payable on death: 40% (2011/12 – 40%)
- Rate payable when 10% of estate left to charity: 36% (2011/12 – 40%)
- Rate payable on lifetime gifts to certain trusts: 20% (2011/12 – 20%)
To deal with such schemes the Government has introduced new rates of SDLT on purchases of residential property valued at over £2 million:
- 7% charge on purchases by individuals from 22 March 2012;
- 15% charge on purchases made on or after 21 March 2012, by companies, collective investment schemes, or partnerships where a member is a company or a collective investment scheme
An annual tax charge may also be applied to the value of residential property held by certain companies, where each property is worth over £2 million. Any such charge will apply from April 2013.
However the main rate for large companies is reducing from 26% to 24% and will be 22% by the year from 1 April 2014.
- Main pool: writing down allowance: 18% (2011/12 – 20%)
- Special rate pool: writing down allowance: 8% (2011/12 – 10%)
- Annual Investment Allowance (AIA) cap: £25,000 (2011/12 – £100,000)
- Lower Earnings Limit (LEL) for Class 1 NICs – £107/week
- Employer’s class 1 above £144/week not contracted out – 13.8%
- Employee’s class 1 not contracted out from £146 to £817/week – 12%
- Employee’s additional class 1 above £817/week – 2%
- Self-employed class 4 from £7,605 to £42,475 per annum – 9%
- Self-employed class 4 additional rate above £42,475 per annum – 2%
- Self-employed class 2 – £2.65 per week
- Voluntary contributions class 3 – £13.25 per week
The Government is consulting on how to integrate the administration of income tax and NI for employers and the self-employed. Any changes are unlikely to take effect until 2014 or later.
From 6 April 2012 cars with CO2 emissions in the band 76-99g/km will be taxed at 10% of list price. Those with CO2 emissions of 100g/km will be taxed at 11% of list price, with the percentage increasing in 1% steps for each additional 5g/km. From 6 April 2013 the 10% list price band will reduce again to 76-94g/km. A car with CO2 emissions of just 115g/km will then be taxed at 15% of list price.
From 6 April 2014 the 11% of list price will apply to cars with CO2 emissions in the band 76-94g/km, with a 1% step up for every addition 5g/km of CO2. From 6 April 2015 the minimum percentage of list price will be 13%, and from 2016 the minimum percentage of list price increases to 15%.
The taxable benefit when fuel is provided for private use in a company van is frozen at £550 for 2012/13.
- Lower rate: 0%
- Reduced rate: 5%
- Standard rate: 20%
The registration and deregistration limits from 1 April 2012 are…
- Registration turnover: £77,000 (1 April 2011 – £73,000)
- Deregistration turnover: £75,000 (1 April 2011 – £71,000)
Changes from 2013
- The standard rate of VAT will apply to the supply and installation of energy saving materials in non-residential buildings used for non-business purposes by charities. Currently the lower rate of VAT applies
- The invoicing rules will be simplified
- Exemptions will be introduced for commercial Universities
- Cable-car rides will attract the reduced rate of VAT, where each cable car holds fewer than 10 passengers.
- Hot take-away food
- Sports nutrition drinks
- Self storage
- Hair-dressers’ chair-rental
- Alterations to listed buildings