Following the 2012 Budget on 21 March 2012 we look at the main provisions, some of which were announced previously and confirmed in the Budget.
Income Tax Rates and Allowances
Up to and including 2012/13, the amount of an individual’s personal allowance depends on age and income in the tax year. From 2013/14, the amount of an individual’s personal allowance will depend on date of birth and income in the tax year.
Personal allowance – born after 5 Apr 1948
Age allowance (65 – 74)
Personal allowance – born after 5 Apr 1938 but before 5 Apr 1948
Age allowance (> 75)
Personal allowance – born before 6 Apr 1938
Married couple’s allowance (>75)
Age-related allowance income limit
Income limit for personal allowance
Income limit for personal allowance – born before 6 Apr 1948
Income Tax bands:
The top rate of tax comes down to 45% from 6 April 2013.
Basic rate – 20%
0 – £34,370
0 – £32,245
Higher rate – 40%
£34,371 – £150,000
£32,246 – £150,000
Top rate – 50% for 2012/13 and 45% for 2013/14
The above rates apply to non-dividend income – dividend income is taxable at 32.5% in the higher-rate band and 42.5%/37.5% in the top-rate band (2012/13 and 2013/14 respectively).
There is a 10% starting rate for saving income only – available if an individual’s taxable non-savings income (after deducting the personal allowance) is less than the starting rate limit (£2,710 for 2012/13).
The proposal to withdraw Child Benefit from higher-rate taxpayers was announced in the Spending Review 2010 but the Budget announced modifications – a new income tax charge will apply to individuals earning over £50,000 and receiving Child Benefit (or whose partner receives Child Benefit). For those earning between £50,000 and £60,000 the charge will be 1% of the Child Benefit for every £100 of income over £50,000; for those earning over £60,000 the charge will be the full amount of Child Benefit.
A higher charge of £50,000 will apply to non-domiciled individuals choosing to be taxed on the remittance basis when they have been resident in the UK for at least 12 out of the 14 previous tax years.
Non-domiciled individuals will be able to remit overseas income/gains without a UK tax liability in order to make qualifying investment in unlisted companies (or those listed on AIM).
Savings and investments
The Annual Allowance for tax relief on pension contributions was reduced from £255,000 to £50,000 from 5 April 2011 and the Lifetime Limit is reduced to £1.5 million from 5 April 2012.
Seed Enterprise Investment Scheme (SEIS)
While changes to various conditions attached to the Enterprise Investment Scheme were announced in last year’s Budget to encourage investment, this year’s Budget announced the SEIS which applies from 6 April 2012 to shares issued in a stand-alone company which is 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%, regardless of his actual tax rate on the cost of the shares up to a maximum of £100,000 and as long as his investment is in less than 30% of the company’s shares.
From 6 April 2012, the ISA limit rises to £11,280, up to £5,640 of which can be in cash.
Businesses and Employers
From 1 April 2012, the main rate of corporation tax will drop to 24%, with further falls to 23% and 22% from 1 April 2013 and 2014 respectively. The small companies’ rate remains at 20%.
As previously announced, capital allowances reduce from April 2012 – the 20% writing-down allowance becomes 18% and the 10% rate which applies to certain assets (most notably high-emission cars) reduces to 8%.
The Annual Investment Allowance, which provides 100% tax relief on expenditure is reduced from April 2012 from £100,000 per annum to just £25,000.
Research and development expenditure:
The planned increase in R&D relief goes ahead – from 1 April 2012, relief will be 225%, with a small reduction in the repayable tax credit from 12.5p to 11p.
Employment Management Incentive Schemes (EMIs)
The maximum value of options which can be held by an employee under an EMI scheme is to be increased from £120,000 to £250,000.
Company car and fuel benefits:
Changes were announced which will take effect in 2014/15 and the following two years – there will be a 2% increase in car benefit with a new maximum of 37% of list price. From 6 April 2016 the minimum car benefit will be 15% but the 3% excess for diesel will be abolished.
Capital Gains Tax and Inheritance Tax
The CGT annual exemption remains at £10,600 in 2012/13, with CGT rates staying at 18% and 28% depending on income levels.
The nil-rate band for IHT remains at £325,000, with the IHT rate at 40%, but where at least 10% of an estate is left to charity, the IHT rate on the remaining estate will be reduced to 36%. .
From 1 April 2012, registration and deregistration limits increase to £77,000 and £75,000 respectively. The rate of VAT remains unchanged.
Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene (Incorporating Modiplus+). He can be contacted on 020 7383 3200 or firstname.lastname@example.org