While there were some surprises in the Chancellor’s speech, a lot was widely predicted in advance and the usual story of “winners and losers” seems to have prevailed.
The headlines from our perspective are largely as follows:
- It was nice to see both an increase in the personal allowance and a reduction in the top rate of income tax to 45% from April 2013. In particular, UK taxable income is likely to be more valuable in the 2013-14 tax year than in 2012-13, and this will make the timing of income tax charges important.
- Refreshingly, there was no change to the valuable tax relief for pension contributions, an area which has seen too much change and uncertainty in recent years.
- Mr Osborne also made some comments on restricting “unlimited” tax relief claims to a maximum of £50,000 or 25% of an individual’s income from 6 April 2013 (whichever is the lower). The precise impact is unclear at present, but this may be likened to the “tycoon tax” trumpeted by the Lib Dems. As e.g. EIS/VCTs and pension contributions are already subject to various caps we know that these won’t be affected. We will have to wait until later this year to find out which reliefs will be hit by these new rules, but the most likely areas affected would seem be trading losses against income, loan interest and Gift Aid (the latter being subject to specific consultation).
- As expected, the Chancellor has come down hard on individuals who own high value UK property, but also on those who own UK property through an offshore company. As such:
- 7% SDLT will apply from 22 March 2012 to residential properties costing over £2m.
- 15% SDLT will apply from 21 March 2012 to residential properties costing over £2m that are acquired by an offshore entity, with consultation to introduce an additional annual charge from April 2013.
- There was also a clear message that SDLT avoidance schemes will be targeted harder in future, and a worrisome footnote about a potential Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... More charge on UK residential property held by overseas structures from April 2013. Those with an existing structure should keep a keen eye on this, and those buying UK property should keep this in mind also.
- Owners of limited companies will benefit from the gradual reduction to corporation tax rates, with the reduction to the Main Rate to 24% being brought forward to 1 April 2012, and the rate reducing down to 22% by 2014. The Small Companies’ Rate remains at 20%.
- Those looking to incentivise key staff via the Enterprise Management Incentive scheme will see an increase to the upper limit on the value of options granted from £120,000 to £250,000 per individual. There was some good news for the option holder too as the fine detail reveals a proposal to allow gains from EMI options to qualify for Entrepreneurs Relief, reducing the rate of Capital Gains Tax to 10%.
- Businesses with a turnover of less than £77,000 may be have the option of operating on a “cash” accounting basis instead of having to account for income that they may not yet have received, which should be good news in terms of complexity and cash flow!
- The Government will also consult on legislation to increase the IHT-exempt amount (currently £55,000) that a UK domiciled individual can transfer to their non-UK domiciled spouse or civil partner. They also propose to allow individuals who are domiciled outside the UK and who have a UK domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of IHT. Again we will have to be patient, as the legislation will be included in Finance Bill 2013.
Please contact us to discuss any matters regarding this year’s Budget.