Following the 2013 Budget on 20 March 2013 we look at the main provisions, some of which were announced previously and confirmed in the Budget.
Income Tax Rates and Allowances
The following were announced:
Personal allowance – born after 5 Apr 1948
Personal allowance – born between 5 Apr 1938 and 5 Apr 1948
Personal allowance – born before 6 Apr 1938
Income Tax Rates:
Dividend rate – for dividends in the basic rate band
Dividend rate – for dividends in the higher rate band
Dividend rate – for dividends in the top rate band
Income tax bands:
0 – £32,010
0 – £31,865
£32,011 – £150,000
£31,866 – £150,000
Savings and investments
The Annual Allowance for tax relief on pension contributions has been £50,000 since 5 April 2011 but will be reduced to £40,000 from 2014/15. Unused annual allowance from the three previous years can be carried forward and added to this annual allowance. The Lifetime Limit is £1.5 million for 2012/13 and 2013/14 but will be reduced to £1.25m from 2014/15. If an individual accrues pension benefits in excess of this limit, the excess is charged to income tax at 25% if taken as a pension and at 55% if taken as a lump sum.
Seed Enterprise Investment Scheme (SEIS):
Last year’s Budget announced the SEIS which applies from 6 April 2012 to shares issued in a company less than two years old, with fewer than 25 employees and gross assets of less than £200,000 before the investment. The investor obtains a tax reducer at 50% on the cost of the shares up to a maximum of £100,000 and as long as his investment is less than 30% of the company’s shares.
For 2012/13 an investor can shelter a gain made on any asset by reinvesting the gains in shares that qualify for SEIS relief. The sum invested is exempt from capital gains tax up to a £100,000 limit.
The above has now been extended to gains arising in 2013/14 if the gain is reinvested in SEIS shares in 2013/14 or 2014/15, up to a limit of half the qualifying re-invested amount.
From 6 April 2013, the ISA limit rises to £11,520, up to £5,760 of which can be in cash.
Businesses and Employers
As previously announced, the main rate of corporation tax drops to 23% from 1 April 2013 and to 21% from 1 April 2014. It has now been announced that the rate will be reduced to 20% from 1 April 2015, aligning it with the small companies’ rate which remains at 20%.
National Insurance Contributions: employment allowance:
The Budget announced an allowance of £2,000 per year for all businesses to be offset against their employer Class 1 NIC liability from April 2014.
Employee shareholder status:
In October 2012, the new “employee shareholder” status was announced whereby employees adopting this status could receive between £2,000 and £50,000 of capital gain tax exempt shares. The Budget confirmed that the first £2,000 of share value received will also be free from income tax and NICs.
Capital Gains Tax (CGT) and Inheritance Tax (IHT)
The CGT annual exemption rises to £10,900 in 2013/14, with CGT rates staying at 18% and 28% depending on income levels.
The nil-rate band for IHT remains frozen at £325,000 until April 2018. Transfers between spouses/civil partners are exempt IHT, although transfers to a non-UK domiciled spouse/civil partner are exempt only up to a lifetime limit of £55,000. From 6 April 2013 that cap will be abolished and non-UK domiciled spouses/civil partners can elect to be treated as UK domiciled for IHT purposes.
From 1 April 2013, registration and deregistration limits increase to £79,000 and £77,000 respectively. The rate of VAT remains unchanged at 20%.
A new scheme will be phased in from autumn 2015 to support working families with children. For childcare costs of up to £6,000 per year, in respect of children up to 5 years old initially, support of 20% (£1,200) will be available.
This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.
Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or firstname.lastname@example.org