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The Chancellor’s Budget this year was set in the context of mixed economic data and business confidence reports. The economy continues its sluggish course, aided by a softening of the emergency klaxon sounding over the Euro… although for how long remains to be seen. With uncertainty abounding, the Budget was never going to be radical and was always destined to be something of a box of bits. The Chancellor confirmed his intention to follow his current path of deficit reduction by cutting both Government expenditure and taxation.
Although careful leaking of some of the major measures ensured that surprises were few and discussion beforehand was dominated by the political controversy surrounding the 50p tax rate, the devil (and interesting bits) are, as always, in the detail.
Given that the Chancellor described tax evasion and aggressive tax avoidance as ‘morally repugnant’, it was no surprise that the technical bulletins accompanying the Budget were replete with anti-avoidance proposals. A ‘General Anti-Avoidance Rule’ (GAAR) is set to be introduced in 2013.
Before you undertake any tax planning or mitigation exercise, take professional advice.
The ‘mansion tax’ applicable to expensive properties held in offshore companies was extensively leaked in advance, but punitive Inheritance Tax (IHT) and Capital Gains Tax measures are also on the way, as is an ‘annual charge’.
Avoidance Schemes Closed
Clearly worried that a Budget measure had been leaked, the Government announced yesterday that, with immediate effect, it was taking measures to prevent two schemes, one involving property losses where there are agricultural connections and the other involving the misuse of post-cessation relief.
Disclosure of Tax Avoidance Schemes
A consultation is being launched to extend the ‘hallmarks’ which set out when tax avoidance schemes must be notified to HM Revenue and Customs (HMRC). From 2013, the identities of dishonest tax agents will be subject to publication, as well as penalties being levied.
Summary of Changes Affecting Private Individuals
This will be earnings-related, being removed entirely for incomes above £60,000.
This will rise to £9,205 for the 2013/14 tax year, an increase of £1,100 compared with 2012/13.
From 6 April 2013, age-related personal allowances will be (in effect) abolished over time for persons not already in receipt of the allowance: it will subsequently be ‘aligned with the personal allowance’.
Basic and Second State Pension
A ‘single tier’ state pension is to be set, based on contributions. This will be set at basic rate with additions based on contributions (and at the whim of the Government). A consultation is due to start this spring.
The existing tax system is to be reformed in 2013. Current HMRC guidance applies until then and the payment by non-doms to use the remittance basis for the 2012/13 tax year remains as announced in the 2011 Budget.
Tax Relief Exploitation
The Government will introduce a limit on all ‘uncapped income tax reliefs’, so that no-one will be able to claim more than £50,000 of reliefs, or 25 per cent of income if this is less. This will not be extended to those reliefs that are already capped, as to do so would reduce the amount of support the tax system gives, for example, to enterprise and pension contributions.
Enterprise Investment Scheme (EIS)
The EIS annual investment limit for individuals will be increased to £1 million from 6 April 2012. ‘Business angels’ are the likely beneficiaries of this change.
VAT on Listed Buildings
The exemption from a charge to VAT for alterations to listed buildings is to be abolished, adding 20 per cent to the cost of such alterations.
The multiplier is being increased from £18,800 to £20,200, and the percentage of the list price that is taxed is also increased. The differential for diesel cars is being abolished, so the cost of a company car running on petrol increases proportionally more than that of a diesel car.
Trading Through a Company
If you earn your living by trading through a company, you may have a shock in store. The Government is introducing a package of measures to tighten up on avoidance through the use of personal service companies. It is consulting on proposals which would require office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source.
Sales of static holiday caravans not designed for year-round occupation will be taxable at the standard rate of VAT from 1 October 2012.
There is to be a clampdown on IHT avoidance through the use of offshore trusts by non-domiciled individuals. The changes will ensure that any reduction in the value of a person’s estate as a result of the arrangements is charged to IHT.