BUDGET SPEECH 22 MARCH 2012

NOTE THAT the following are general comments only and observations on some of the key points in the March 2012 Budget speech and related aspects. For specific help and advice tailored to your needs please contact us.

INCOME TAX - this Budget reduces the 50p "additional rate" of income tax to 45p from April 2013. The corresponding higher rate tax charge on dividends falls from 42½% to 37½%

Personal allowance - this is already up to £8105 from April 2012; there is a further increase to £9025 from April 2013.

Higher rate threshold - from April 2013 the starting point for high rate tax falls to £41,450 which, it is estimated, will push about 325,000 more people into the higher-rate bracket.

According to the Institute for Fiscal Studies the number of higher-rate taxpayers could increase from 3.7 million in 2011 to a colossal 5 million by 2014.

Income above £100,000 remains taxable at an effective tax rate of 60%.

Cars and fuel benefits - scale charges increase.
>>The fuel benefit multiplier in the provision of private fuel increases on 6th April 2012 from £18,800 to £20,200
>> Company car benefit will increase by a maximum of 1% for 2014/15 and 2% for 2015/16 where the employee remains in the same car.
The extra 3% supplemental charge for diesel cars is withdrawn from April 2016.

Taxpayers aged over 65 - the special higher personal allowance, commonly called "age allowance", is to be frozen and phased out.

Currently the allowance is granted to those aged 65 and above whose taxable income is below a set limit (£25,400 for 2012/13).

For people aged 65 to 74 the allowance is £10,500 and, for people 75 or older, it is £10,660.

Taxpayers born after 6 April 1948 will no longer receive this allowance.

CHILD BENEFITS - these are withdrawn, according to a sliding scale, where one earner in the household has annual income from £50,000.

At annual income of £60,000 all child benefit is lost.

Any child benefit received by people earning between these figures will be taxed through self-assessment tax return which possibly means new self-assessment filers.

CORPORATION TAX - the main rate of 26% is reduced to 24% from April 2012. It will fall further to 23% from April 2013 and 22% from April 2014.

Special treatment will be given to corporation tax on patents profits via a 10% "patents box".

Some video games and TV areas will benefit from new incentive reliefs with effect from April 2013.

There is no change to the rate of corporation tax payable by small companies.

RESEARCH & DEVELOPMENT - there is to be a new credit from April 2013, minimum 9.1% before tax, with various other improvements in research and development, all as previously announced.

SEED/SEIS/Enterprise Schemes - full income tax relief up to the investor's top rate will be available on qualifying investment and a new capital gains tax exemption for reinvestment.

New Enterprise Zones are to be added.

GENERAL ANTI ABUSE RULE (GAAR) - the government is aiming to introduce the GAAR in the Finance Bill 2013.

TARGETTED ANTI AVOIDANCE RULE (TAAR) - this Budget/Finance Bill is to introduce new legislation especially concerned with stamp duty land tax on properties of over £2 million and capital gains tax on overseas properties bought by UK taxpayers using limited companies and similar arrangements. All effective April 2013.

IR35 REVIEW - the government have announced their intention to make the rules of IR35 clearer and easier to understand but we are still struck with it, nevertheless.

STAMP DUTY LAND TAX - big changes for properties valued at over £2 million. 7% stamp duty is chargeable on such properties from 22nd March 2012 and 15% chargeable if the acquirer is a "non natural person" (limited companies, collective schemes, partnerships with non natural person included etc.)

Britain has the highest property taxes in the OECD. This will make them worse.

BUSINESS PROPERTY RENOVATION ALLOWANCE (BPRA) - this is extended for further five years to April 2017.

FURNISHED HOLIDAY LETTINGS - a reminder that rules have been tightened. Use of loss relief against other income is restricted from 6th April 2011.

CAPITAL ALLOWANCES - Already announced is the reduction in the Annual Investment Allowance from £25,000 to £10,000 effective April 2012.

In enterprise zones 100% relief will be due to qualifying companies incurring qualifying expenditure on plant and machinery in specified locations including London Royal Dock Enterprises Zone.

Capital allowances for expenditure on low emission cars, under 95 g/km, continues until 31st March 2015 except for leasehold vehicles.

Emissions threshold falls to 95 g/km from April 2013 but the main allowance rate of 18% will apply to 130g/km, falling from 160g/km.

NATIONAL INSURANCE - the starting point for class 1 employee contributions is raised from £139 per week to £146 per week from April 2012.

Class 2 contributions for the self-employed are increased by 15p per week to £2.65.

Small Earnings Exception limit is raised from £5315 to £5595 effective 6th April 2012.

DOMICILE & RESIDENCE - The £30,000 non domicile "remittance basis" charge is increased. The charge is now £50,000 where the taxpayer has been a UK resident in 12 out of last 14 years.

Charge-free remittances to the UK are to be allowed for qualifying commercial investment in the UK.

From 6th April 2013 the concept of "ordinarily resident" disappears. A new statutory residence test will apply.

Employees whose duties are carried out both inside and outside of the UK are entitled to deduct a proportion of their earnings which relate to time spent outside the UK. This is referred to as "overseas workday relief". Until now this relief has been concessional/non statutory but it will now be placed on a statutory basis.

QUALIFYING LIFE POLICIES - From 6th April 2013 investments into qualifying life policies such as endowment plans will be capped at a maximum amount of £3600 per annum. If more is invested then the policy becomes "non qualifying" leaving the proceeds liable to taxation on encashment.

CAPITAL GAINS TAX - the annual personal exemption of £10,600 for 2011/12 remains unchanged for 2012/13.

From 6th April 2013 this will rise in accordance with CPI not RPI. New rules introduced on that day also to cover capital gains tax on disposals of UK properties and shares therein.

New legislation will also be introduced relating to roll over relief and farming SPS arrangements.

INHERITANCE TAX - the annual rate band remains fixed at £325,000 to April 2015 then rises in line with CPI.

The Government intends to increase the IHT exempt amount that a UK-domiciled individual can transfer to his/her non-UK domiciled spouse / civil partner.

Individuals who are domiciled outside of the UK, and who have a UK-domiciled spouse or civil partner, will be allowed to elect to be treated as domiciled in the UK for the purposes of inheritance tax.

The government is to introduce a lower 36% rate of inheritance tax which will be applicable to deaths after 6th April 2012 if at least 10% of the deceased's net estate is left to charity.

VAT - the registration limit is increased to £77,000 and the deregistration limit increased to £75,000 both from 1st April 2012.

With effect from 31st October 2012 a new online registration system is to be introduced.

VAT car fuels scale charges are up.

In 2013, the reduced rate for the installation of energy saving materials is to be withdrawn. Charities will no longer be able to benefit from the 5% rate of VAT for energy saving materials installed in a building used for its relevant charitable purposes. This includes wall, floor and ceiling insulation, solar panels, wind and water turbines, ground and air source heat pumps and boilers designed to be fuelled by wood, straw or similar organic matter.

The zero-rate relief for approved alterations to listed buildings will be removed. [VAT Act 1994, Schedule 8, Group 6]. This will have a significant impact on all listed dwellings, listed churches, and / or ancient or historical monuments.

It means that those who own - or are responsible for - protected buildings / monuments will now suffer VAT at the standard rate on all works of approved alterations, repair or maintenance (subject to transitional and "anti avoidance" arrangements).

On the plus side the "Listed Places of Worship Refund Scheme" for listed places of worship is to be extended so that claims can be made for approved alterations which are subject to the standard rate of VAT as a result of this announcement.

The scheme is currently available for works of repair and maintenance but there is currently no indication that the funding available within the scheme will be extended to meet the additional claims.

"UNLIMITED" RELIEFS - From 6th April 2013 all "unlimited" income tax reliefs will be capped/restricted to the higher of £50,000 or 25% of income.

This has the potential to affect "sideways" and "carried forward" loss reliefs against other income (including film investment losses), qualifying interest relief on loans - for example to invest in close companies or partnerships - but, worst of all, "gift aid" and other charitable donations by substantial donors.

Loss reliefs claimed only against the same income, i.e. carried forward or back against profits from the same business, will not be affected.

So far as concerns charitable giving the Government says it intends to "explore with wealthy philanthropists ways to ensure that this measure will not impact significantly on charities that depend on large donations".

PENSIONS - the "lifetime limit" for pension investment fall for £1.8 million to £1.5 million from 6th April 2012.

Investors who have funds not yet drawn as pensions can pass them on to others but the fund will suffer a 55% tax charge.

Other information is detailed elsewhere in this site.

Please visit this page again after future Budget statements are made to view our comments.

Further information about UK tax and other legislation can be found here ..... www.opsi.gov.uk/