Personal and Trust Taxation
|Income tax allowances and reliefs and credits||2012/13||2011/12|
|Personal allowance reduced by 50% of income over||£100,000||£100,000|
|Personal (age 65-74)||£10,500||£9,940|
|Personal (age 75 & over)||£10,660||£10,090|
|Married/civil partners (minimum) at 10%*||£2,960||£2,800|
|Married/civil partners (age 75 & over) at 10%*||£7,705||£7,295|
|Age-related relief reduced by 50% of income over||£25,400||£24,000|
|Child benefit charge from 7 January 2013|
|– 1% of benefit for every £100 of income over||£50,000||N/A|
|Rent-a-room tax-free income||£4,250||£4,250|
|Venture Capital Trust (VCT) rate of relief||30%||30%|
|Enterprise Investment Scheme (EIS), £500,000 max||30%||30%|
|EIS eligible for capital gains tax re-investment relief||No limit||No limit|
|Seed EIS (SEIS) rate of relief||50%||N/A|
|SEIS eligible for CGT reinvestment exemption||£100,000||N/A|
|Registered Pension Scheme:|
|– annual allowance||£50,000||£50,000|
|– lifetime allowance||£1,500,000||£1,800,000|
|* Where at least one spouse/civil partner was born before 6 April 1935.|
|Income tax rates||2012/13||2011/12|
|Starting rate of 10% on savings income up to*||£2,710||£2,560|
|Basic rate of 20% on income up to||£34,370||£35,000|
|Higher rate of 40% on income||£34,371-£150,000||£35,001-£150,000|
|Additional rate of 50% on income over||£150,000||£150,000|
|– basic rate taxpayers||10%||10%|
|– higher rate taxpayers||32.5%||32.5%|
|– additional rate taxpayers||42.5%||42.5%|
|– standard rate band generally||£1,000||£1,000|
|– dividends (rate applicable to trusts)||42.5%||42.5%|
|– other income (rate applicable to trusts)||50%||50%|
|* Not available if taxable non-savings income exceeds the starting rate band.|
Income tax bands and personal allowance
All income tax rates for 2012/13 will remain at their 2011/12 levels. For 2013/14 the personal allowance will rise from £8,105 to £9,205 and there will be a £2,125 reduction in the basic rate limit from £34,370 to £32,245.
From 2013/14, there will be no increase in the age-related personal allowances and their availability will be restricted to people born before 6 April 1948 for the allowance worth £10,500, and 6 April 1938 for the allowance worth £10,660. The aim is to phase out the age-related allowances within a few years.
For 2013/14 the additional rate of tax will be reduced from 50% to 45% (from 42.5% to 37.5% for dividends). The rates of tax for trusts will be similarly reduced.
SAVER: Protect your personal allowance
In 2012/13 your personal allowance is reduced by 50p for every pound your income is over £100,000. If you can reduce your income below £100,000, e.g. by making a pension contribution or choosing tax-efficient investments, you should benefit from the full allowance.
Cap on unlimited income tax reliefs
A cap will apply to income tax reliefs that individuals will be able to claim from 6 April 2013. The cap will apply only to reliefs that are currently unlimited – e.g. qualifying interest payments. For anyone seeking to claim more than £50,000 in reliefs, a cap will be set at 25% of income (or £50,000, whichever is greater).
Child benefit will be withdrawn for some taxpayers by an income tax charge with effect from 7 January 2013. The charge will only apply to households (regardless of marital status) where a parent or partner has an ‘adjusted net income’ of over £50,000 a year. Where each has an income of over £50,000, the charge will only apply to the person with the higher income.
The charge will be 1% of the amount of child benefit for every £100 of income that exceeds £50,000. A taxpayer whose income is at least £60,000 will be liable to a charge equivalent to the full amount of child benefit. For example, based on a full tax year, child benefit for families with two children is currently £1,752. For a taxpayer whose income is £54,000, the charge will be £700.80, i.e. £17.52 for every £100 earned above £50,000. For a taxpayer whose income is £60,000 or more, the charge will be £1,752.
Venture capital trusts (VCTs) and enterprise investment schemes (EISs)
The Finance Bill 2012 will make various changes to VCTs and EISs, which have been subject to extensive consultation. For example, the EIS annual investment limit for individuals will increase to £1 million from 6 April 2012.
The Finance Bill 2012 will also legislate for seed enterprise investment schemes (SEISs), which will offer 50% income tax relief with an annual investment limit for individuals of £100,000. In 2012/13 only, SEIS will also offer a CGT exemption for gains realised on the disposal of assets that are invested in the scheme.
Enterprise management incentive (EMI) and other share schemes
- The individual limit on qualifying EMI options will be increased from £120,000 to £250,000. The change will be made by statutory instrument, as soon as possible.
- Gains made on shares acquired through exercising EMI options after 5 April 2012 will be eligible for CGT entrepreneurs’ relief.
- There will be consultation on ways to extend access to EMI for academics who are employed by a qualifying company.
These changes are subject to State aid approval. There will also be a consultation on the Government’s response to the Office for Tax Simplification’s report on tax advantaged share schemes, with legislation in Finance Bill 2013. The Treasury will conduct a separate internal review on the role of employee ownership in supporting growth.
Company cars and vans
The appropriate percentage of list price subject to tax will increase by 1% for cars emitting more than 75g/km of CO2 and will apply up to a maximum of 35% in 2014/15. The increase will be 2% up to a maximum of 37% in both 2015/16 and 2016/17.
From April 2015, the appropriate percentage for zero emission and low carbon vehicles will be 13% and will increase by 2% in 2016/17. From April 2016, the Government will remove the 3% diesel supplement, so that diesel cars will be subject to the same level of tax as petrol cars.
THINK AHEAD: Take care in choosing your next company car.
The Government will exclude certain security enhancements from being treated as accessories in calculating the cash equivalent of the benefit on company cars. The changes take effect retrospectively from 6 April 2011.
From 6 April 2012, the car fuel benefit charge (FBC) multiplier for cars will increase from £18,800 to £20,200. The FBC multiplier will increase by 2% above the RPI in 2013/14.
From 6 April 2012, the van FBC multiplier will be frozen at £550, and will increase by the RPI in 2013/14. The van benefit charge will be frozen at £3,000 in 2012/13.
Domicile and residence
As previously announced, from 6 April 2012 there will be changes to the taxation of non-domiciled individuals to:
- Allow them to bring their overseas income and gains to the UK tax-free to make commercial investments in qualifying businesses;
- Increase the existing £30,000 annual charge to £50,000 for those resident in the UK in 12 or more of the last 14 tax years;
- Reduce the complexity of some aspects of the remittance basis rules.
A new statutory residence test will be introduced with effect from 6 April 2013. From the same date, ‘ordinary residence’ will be abolished for tax purposes, but overseas workday relief will be retained and placed on a statutory footing.
HMRC will revise its practice on the taxation of non-resident sports people. HMRC will take training days into account when calculating the proportion of worldwide endorsement income that is subject to UK tax.
Taxation of pensions
Several changes to pensions take effect from 6 April 2012, including:
- A reduction in the standard lifetime allowance from £1.8 million to £1.5 million;
- An extension of the commutation rules to allow individuals aged 60 or over to commute funds of up to £2,000 held in personal pensions into a lump sum, regardless of their other pension savings, subject to a maximum of two such commutations in a lifetime;
- The end of contracting out of the state second pension scheme (S2P) via money purchase occupational schemes and personal pensions.
There will be no change to the £50,000 annual allowance.
Finance Bill 2013 will amend the rules that currently allow employers to pay pension contributions into their employees’ family members’ pensions as part of their employees’ remuneration package. The existing tax and NIC advantages from these arrangements will be removed.
Qualifying recognised overseas pension schemes (QROPS)
Finance Bill 2013 will strengthen reporting requirements and powers of exclusion relating to the QROPS regime, supporting the changes proposed in December 2011. Where a country or territory in which a QROPS is established allows pension schemes to provide tax advantages that are not intended to be available under the QROPS rules, these schemes will be excluded from being QROPS.
Income tax on interest
There will be consultation on proposals for changes to the income tax rules on the taxation of interest and interest-like returns, and the rules on the deduction of tax at source from such amounts. Any changes will be introduced in the Finance Act 2013.
Life insurance qualifying policies
There will be an effective £3,600 annual limit on the total premiums that an individual can pay into qualifying life insurance policies, such as maximum investment plans and other endowment policies, from 6 April 2013. If this limit is exceeded, the affected polices will cease to be qualifying and may give rise to a tax charge on gains.
Transitional provisions will apply to qualifying policies issued on or after 21 March 2012 and before 6 April 2013, and before 21 March 2012 where certain variations are made after this date. These provisions will ensure that income tax relief continues to apply to benefits from these policies, but only in respect of the premiums paid before 6 April 2013 and premiums paid up to the limit on or after this date.
Life insurance chargeable events
With effect from 21 March 2012, the basis for calculating chargeable event gains that may be liable to income tax will be amended to prevent certain avoidance techniques involving interdependent clustered policies and the rules for deductions of earlier gains.
Working tax credit (WTC): working hours rules for carers
From 6 April 2012, a couple where at least one partner is entitled to carer’s allowance may also qualify for WTC, including the childcare element, if at least one of the partners works for at least 16 hours a week.Talk to Barnes Roffe today