According to the Budget report, “The Government is committed to creating a more sustainable tax system that is fair and supports growth. It will: reward work and support families; reduce tax rates to increase the competitiveness of the UK tax system; restrict tax reliefs and ensure everyone pays the tax they owe; and make the tax system simpler and more sustainable overall.”
Income Tax
Personal Allowance – increased to £9,205 in total
The Age Related Allowance ('ARA') is to align with the Personal Allowance and subsequently be frozen at 2012-13 levels. From April 2013, the ARA will no longer be available, except to those born on or before 5 April 1948.
Top Income Tax Rate – down to 45%
The top rate of tax will reduce from 50% to 45% from April 2013. From April 2013, the dividend additional rate will be reduced from 42.5%to 37.5%.
Corporation Tax
Main rate reduced to 24%
The main rate of corporation tax will reduce by an additional 1% from April 2012. It will fall by 2% from 26% to 24% in April 2012, to 23% in April 2013 and to 22% in April 2014.
Capital Gains Tax
Annual exempt amount – still £10,600
The CGT annual exemption will remain at its 2011–12 level of £10,600 for 2012–13. From 6 April 2013 the annual exemption will rise in line with the CPI instead of the RPI; further detail expected in Finance Bill 2012 – to be issued on 29 March 2012.
Withdrawals from foreign currency bank accounts – no CGT
CGT liability will be removed from capital gains which arise on withdrawals of money in foreign currency bank accounts from 6 April 2012. Further detail expected in Finance Bill 2012.
CGT regime and non-residents
The CGT regime will be extended to gains on disposals of UK residential property (and shares or interests in such property) by non-resident 'non-natural persons' commencing from April 2013, following consultation on the details of the measure. Further detail expected in Finance Bill 2013.
Transfer of assets abroad and gains on assets held by foreign companies
Proposed amendments to two pieces of legislation designed to protect the UK tax base.
- s 714-751 of the Income Tax Act 2007 (transfer of assets abroad)
- s 13 of the Taxation of Chargeable Gains Act 1992 (gains on assets held by foreign companies closely controlled by UK participators).
The Government will consult on draft legislation after Budget 2012 and will implement changes in Finance Bill 2013. The changes, which are unlikely be to a taxpayer’s disadvantage, will have retrospective effect to 6 April 2012 but, exceptionally, a taxpayer may elect for the new rules to apply from 6 April 2013. Further detail expected in the Finance Bill 2013.
Inheritance Tax
Spouses and civil partners domiciled outside the UK
The IHT-exempt amount (currently £55,000) that a UK-domiciled individual can transfer to their non-UK domiciled spouse or civil partner is expected to increase. Individuals who are domiciled outside 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 IHT. These proposals will be subject to a technical consultation.
Threshold frozen
The IHT nil-rate band (NRB) will be frozen until April 2015. As announced at Budget 2011, from April 2015 the NRB will rise in line with the CPI.
Stamp Duty Land Tax (SDLT)
Residential properties over £2million – 7% SDLT
A new SDLT rate of 7% for residential properties over £2 million will become effective for completions on or after 22 March 2012.
A 15% rate of SDLT is to be applied to residential properties over £2 million purchased by non-natural persons, such as companies, effective from 21 March 2012.
There will be a consultation on the introduction of an annual charge on residential properties valued at over £2 million owned by non-natural persons, with the intention of legislating in Finance Bill 2013 for commencement in April 2013.
Non-standard leases
The Government will consult on measures to simplify SDLT rules for non-standard leases. Further detail expected in Finance Bill 2013.
Sub sale relief
Legislation will be introduced, with effect from 21 March 2012, to make clear that the grant or assignment of an option cannot satisfy the requirements of the SDLT “sub-sale” rules.
It would appear that section 45 Finance Act 2003 will be amended so that any options granted (or assigned) on or after the 21 March 2012 will no longer come within the definition of a ‘transfer of rights’.
Anti-Avoidance
General Anti-Avoidance Rule (GAAR) - no further detail
The recommendation of the Aaronson Report have been accepted that a General Anti-Abuse Rule (GAAR) targeted at artificial and abusive tax avoidance schemes would improve the UK’s ability to tackle tax avoidance while maintaining the attractiveness of the UK as a location for genuine business investment. A consultation document will be issued in summer 2012 with a view to bringing forward legislation in Finance Bill 2013 regarding:
- new draft legislation based on the illustrative clauses in the Aaronson report;
- establishment of the Advisory Panel;
- the development of full explanatory guidance.
In addition, the Government will extend the GAAR to SDLT.
Disclosure of tax avoidance schemes (DOTAS) – no further changes yet
The Government will formally consult over summer 2012 on proposals to extend the DOTAS ‘hallmark’s (the descriptions of schemes required to be disclosed for income tax, capital gains tax or corporation tax) so as to capture avoidance schemes not currently notifiable, with a view to publishing draft regulations later in the year.
Residence & domicile issues
Reform of non-domicile taxation & statutory residence test - no further detail
No further detail relating to the changes for non-domiciles and the statutory residence test (as previously announced in Budget 2011) was provided in this Budget. It is expected that further detail will be announced in the Finance Bill 2012 – to be issued on 29 March 2012.
A summary of responses and draft legislation for consultation after Budget 2012 relating to the statutory residence test is expected with further detail to be issued in Finance Bill 2013.
Statement of Practice (SP1/09)
SP1/09 will be put on a statutory footing. SP1/09 provides an administrative easement for employees who are resident but not ordinarily resident in the UK and have a single contract of employment covering duties carried out in the UK and overseas.
The Government will consult on draft legislation after Budget 2012 which will be effective from 6 April 2013. The existing SP1/09 will remain in force for the 2012–13 tax year.
Taxation of non-resident sports people
HMRC will revise its practice on the taxation of non-resident sports people to take training days into account when calculating the proportion of worldwide endorsement income subject to UK tax.
Pensions relief
Lifetime & Annual Allowances - restrictions
Following changes made in Finance Act 2011 to restrict the cost of pensions tax relief, by reducing the Lifetime Allowance from £1.8 million to £1.5 million from April 2012, a regulation-making power will be made - expected to be in the Finance Bill 2013.
In addition, following changes made in Finance Act 2011 to restrict the cost of pensions tax relief by reducing the Annual Allowance from £255,000 to £50,000 for the 2011-12 tax year, technical amendments to the legislation will be made through regulations to ensure the rules surrounding the schemes and deferred members work as intended.
Asset-backed pension contributions - limitations
On 22 February 2012, the Government published further legislation, with immediate effect, to limit the circumstances in which up-front relief can be given to asset-backed arrangements in line with the original policy aim. Further changes to the previously published legislation and structured finance legislation have been announced with effect from 21 March 2012 – detail to be in the Finance Bill 2012.
Investment relief
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) – more scope
From April 2012, the EIS annual investment limit for individuals will be increased to £1 million. The qualifying company limits will be increased to companies with fewer than 250 employees and gross assets before investment of £15 million and a post-investment gross assets limit of £16 million, and the annual investment limit for qualifying companies will increase to £5 million under both EIS and VCTs, subject to State aid approval.
From April 2012, some restrictions on qualifying shares and types of investor for EIS and the £1 million limit on investment by a VCT in a single company (except for companies in a partnership or a companies in a partnership) will be removed. For both EIS and VCTs the Government will also introduce a new disqualifying purpose test to exclude companies set up for the purpose of accessing relief: exclude acquisition of shares by a qualifying company in another company and exclude investment in some feed-in tariff businesses.
Seed Enterprise Investment Scheme (SEIS) - introduction
From April 2012, the new Seed Enterprise Investment Scheme (SEIS), providing income tax relief of 50% for individuals who invest in shares in qualifying seed companies will be introduced. A CGT holiday will be offered so that gains realised on the disposal of assets in 2012–13 that are invested through SEIS in the same year will be exempt from CGT. Further detail expected in Finance Bill 2012
Business Premises Renovation Allowance (BPRA) - extension
As announced at Budget 2011, from April 2012 the BPRA scheme will be extended for a further five years to April 2017. Changes will also be made to the scheme to ensure continuing compliance with State aid rules.
Enhanced Capital Allowances (ECAs) in Enterprise Zones - extension
The Government will offer 100% capital allowances on plant and machinery investment made in designated areas of the London Royal Docks Enterprise Zone, three Scottish Enterprise Zones in Irvine, Nigg and Dundee, and Deeside in North Wales. This follows the announcements of ECAs in English Enterprise Zones in 2011 and in an additional zone in Humber announced in February 2012. A full list of current zones and maps will be published on the Treasury website shortly. Allowances in all zones will be available from 1 April 2012.
Capital allowances: feed-in tariffs (FITs) and Renewable Heat Incentives (RHIs) - introduction
As announced at Budget 2011, from April 2012, expenditure on plant and machinery for which tariff payments are received under the renewable energy schemes introduced by DECC (FITs or RHIs) will not be entitled to enhanced capital allowances. In addition, expenditure on solar panels will be designated as special rate expenditure for capital allowances purposes from April 2012.
Enterprise Management Incentive (EMI) scheme
Grant limit increased
The individual grant limit will double from £120,000 to £250,000, to commence at the earliest opportunity following State aid approval and provide enhanced guidance to support start-ups.
Entrepreneurs’ Relief will be extended to gains on shares acquired through EMI, and the Government will consult on extending the scheme to academics employed by a qualifying company, from April 2013 subject to State aid approval.
VAT
Revaluation of registration and deregistration thresholds - increases
From 1 April 2012 the VAT registration threshold will be increased from £73,000 to £77,000 and the deregistration threshold from £71,000 to £75,000
Online registration & online filing - introduction
As announced at Budget 2011, an online system for VAT registration, de-registration, and changes to business details will be introduced with effect from 31 October 2012. From the same date, certain VAT forms will be removed. The VAT threshold for businesses not established in the UK will be removed from 1 December 2012.
General
The Government will provide from 2014–15, a new Personal Tax Statement for around 20 million taxpayers. This will detail the income tax and national insurance contributions (NICs) they have paid, their average tax rates, and how this contributes to public spending.
The Government will also launch a detailed consultation on integrating the operation of income tax and NICs.
If you would like further information about the Budget 2012and how it may affect your legal rights please contact one of our lawyers telephone 020 7611 4848. Please note that, whilst we have done our best to ensure this article is accurate, we are not qualified accountants or tax advisers and as such cannot give you specific financial or tax advice on the Budget 2012.
Full detail on the Budget 2012 can be found at:
http://www.hm-treasury.gov.uk/budget2012_documents.htm
http://www.hmrc.gov.uk/budget2012/index.htm
