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Budget Comment April 2012
Another win for Politics over Economics

Add a good dollop of SENSATION from the media and what have we got: an ever expanding debt mountain!

Osborne cuts top rate of tax from 50% to 45% – sounds pretty dramatic but it’s not true! It isn’t cut until 6 April 2013. And it’s an odd delay considering George himself admits it is counter-productive. Cut it now then George!

Granny Tax sounds pretty harsh, but when taken in context of rapidly increasing Personal Allowance, State Pension and debt ridden youngsters (together with increased property values and, for the worst off, Tax Credits) Granny should be ok.

Elsewhere, from 7 January 2013 (what date is that!) there will be a complicated (and often unfair) tax charge to recoup Child Benefit where one of the household inomes exceeds £50,000.

The reduction of the main rate of Corporation Tax (whilst not applying to many Blythe clients) feels like a good move to encourage growth – the bedrock of debt management.

And the measures to reduce aggressive and complex tax planning are a move in the right direction but don’t expect anything simple here – if there was a simple solution it would have been introduced long ago!

Truth is, there’s not a great deal to report. There are some big changes to allowances and reliefs and George continues Gordon’s habit of signalling future changes now. We list the main changes below and below that we set out the full chart of Tax Rates, Allowances, Reliefs and Thresholds.

But first did you hear the one about Ministers divulging Tax Return information as a move towards transparency? I don’t think so! Surely it will merely give a boost to Off Tax Return Tax Planning with a greater proliferation of personal companies, trust funds and life assurance bonds. And then there’s Ken Livingstone justifying his personal company on the grounds that he employs people. Think again Ken!

Oh and it is worth remembering the State Pension changes – we are well into the period of transition between receiving at 60/65 (female/male) and 67 (everyone). For example a current 55 year old (male or female) will be entitled to State Pension at the age of 66 (as things stand!).

The main changes for 2012/13
  • The Personal Allowance (the amount we can earn tax free) is up £630 to £8,105
  • But the point at which the 40% rate starts is still £42,475
  • Main Corporation Tax rate is down 2% (from 26% to 24%)
  • The Non-Domicile flat rate charge for the Remittance Basis to apply is up from £30,000 to £50,000
  • Capital Gains Tax – Entrepreneurs Relief lifetime limit is up from £5m to £10m
  • The Annual Investment Allowance (for businesses) is down from £100,000 to £25,000
  • The rate of Inheritance Tax is reduced from 40% to 36% where 10% of an estate is left to charity
  • The VAT threshold is up from £73,000 to £77,000 from 1 April 2012
  • Stamp Duty Land Tax increase to 7% on residential properties over £2,000,000 with effect from 22 March 2012. For other rates see the table below.
  • Enterprise Investment Scheme (EIS) maximum investment is up from £500,000 to £1,000,000
Looking ahead at some of the main changes coming in for 2013/14
  • The 50% rate of Income Tax will be reduced to 45%
  • The Personal Allowance (the amount we can earn tax free) is up £1,100 to £9,205
  • Age Allowance to be frozen and then phased out
  • Limit to be introduced for the amount of Income Tax relief on otherwise uncapped sources.
  • Charities will be able to claim Gift Aid on cash collections

These are just headlines, please note the full chart of Rates and Allowances below and remember – there is always more to it than meets the eye so please contact us before taking or refraining from action.

Finally, and as always, there are continual changes to pensions that are far too complex to consider here. The basics stay the same but, if you want to make significant contributions or do anything radical, contact us and we will either advise or (quite likely) pass you on to a pension specialist.

Rates and Allowances

Rates and allowances for income tax, corporation tax, capital gains tax, inheritance tax are set out below.

 
2011-12
(£)
2012-13
(£)
Increase
(£)
Income tax allowances      
Personal allowance
Personal allowance for people aged 65-74
Personal allowance for people 75 and over
7,475
9,940
10,090
8,105
10,500
10,660
630
560
570
Income limit for under 65 personal allowance
 
Income limit for age-related allowances
100,000

24,000
100,000

25,400

0

1,400

Married couple’s allowance for people born before 6 April 1935

Minimum amount of married couple’s allowance

Blind person's allowance
7,295


2,800

1,980
7,705


2,960

2,100
410


160

120
Capital gains tax annual exempt amount:
Individuals etc
Other trustees

10,600
5,300

10,600
5,300

0
0
Inheritance tax threshold
325,000
325,000
0
Taxable bands 2011-12 (£)
Taxable bands 2012-13 (£)
Starting rate 10%
Starting rate 10%
Basic rate 20%
0 – 35,000
Basic rate 20%
0 – 34,370
Higher rate 40%
35,001 - 150,000
Higher rate 40%
34,371 - 150,000
Additional rate 50%
Over 150,000
Additional rate 50%
Over 150,000
Corporation tax profits 2012 (£)  
Small companies’ rate 20%
0 – 300,000
Marginal relief
300,001 – 1,500,000
Main rate 24%
1,500,001 or more
The main rate of Corporation Tax for 2013 will be 23%
National Insurance changes from 6 April 2012
 
2011/2012
2012/2013
Class 1 Employees
On first £139 pw Nil £146 pw Nil
Between £139 - £817 pw 11% £146 - £817 pw 12%
Over £817 pw 1% £817 pw 2%
Employee's contracted-out rate 1.6%   1.4%
Married womans
reduced rate
5.85% of £139 to £817 pw, 1% above £817 5.85% of £146 to £817 pw, 2% above £817
Class 1 Employers
On first £136 pw Nil £144 pw Nil
Over £136 pw 13.8% £144 pw 13.8%
Employers' contracted-out rebate, salary related schemes 3.7%   3.4%
Employers' contracted-out rebate, money purchase schemes 1.4%   Abolished
Class 2 Self employed
Flat rate £2.50 pw   £2.65 pw
Small earnings exception £5,315 pa   £5,595 pa
Special Class 2 rate for share fishermen £3.15 pw   £3.30 pw
Special Class 2 rate for volunteer development workers £5.10 pw   £5.35 pw
Class 3 Voluntary
 Flat rate £12.60 pw £13.25 pw
 Class 4 Self employed
On profits between £7,225 - £42,475 pa 9% £7,605 - £42,475 pa 9%
  above £42,475 2% above £42,475 2%
Stamp Taxes

Transfers of property (consideration paid)

Rate
All land in the UK
  Residential Non-residential
Zero £0 - £125,000 £0 - £150,000
1% Over £125,000 – £250,000 Over £150,000 – £250,000
3% Over £250,000 – £500,000 Over £250,000 – £500,000
4% Over £500,000 – £1,000,000 Over £500,000 – £1,000,000
5% Over £1,000,000 Over £1,000,000

The Budget 2012 also announced a 15 per cent rate charge of stamp duty land tax on certain non-natural persons enveloping a residential property where the consideration given exceeds £2million. Where the interest/property with a consideration in excess of £2 million is purchased in sole or joint names then a 15 per cent rate SDLT charge will apply to the following:

  • all such purchases by bodies corporate (largely companies);
  • all collective investment schemes; and
  • Age Allowance to be frozen and then phased out
  • all partnerships where there are one or more members are one of the above.

The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5% for 2012-13.

Value Added Tax (VAT)
  April 2011-12 April 2012-13
Standard rate 20% 20%
Reduced rate 5% 5%
Zero rate 0% 0%
Exempt n/a n/a
Value Added Tax (VAT) – Registration and Deregistration thresholds
  From April 2011 From April 2012
VAT - registration threshold 73,000 77,000
VAT - deregistration threshold 71,000 75,000