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6th December 2012
Posted in Articles, Business Tax, Private Client, Trusts and Estates by Michael Dawson
The Chancellor of the Exchequer delivered his Autumn Statement to Parliament on 5 December 2012, alongside the publication of the Office for Budget Responsibility’s updated forecasts for growth and borrowing.
The Government’s economic strategy is focused on reducing the deficit, restoring stability, rebalancing the economy and equipping the UK to compete in the global race.
Here we provide our summary of the Autumn Statement as it applies to the UK tax payer.
Draft legislation relating to these areas will be published on 11 December 2012 and we will provide further updates shortly thereafter.
The personal allowance for those aged under 65 will rise to £9,440 in April 2013 meaning that basic rate tax payers will find themselves paying less income tax.
In the current tax year (2012/13) tax payers enjoy a personal tax allowance of £8,105 and are then taxed at 20% on the next £34,371 of their income. Therefore, their obligation to pay the higher rate tax of 40% starts at £42,476 of income.
Along with the rise in personal allowances to £9,440, the band of income to be taxed at the 20% rate has been cut back to £32,010. This makes the trigger point for the 40% tax rate £41,450 from April 2013.
The effect of the increased personal allowance on basic rate tax payers will be a saving of £267 per year.
Due to the reduced basic rate band, the effect on a higher rate tax payer will be less, with an income tax saving of around £60 in 2013/14 when compared to 2012/13.
The chancellor has indicated that the threshold for the 40% rate will rise by 1% in 2014 to £41,865, and then to £42,285 in April 2015.
The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 will continue at a rate of £1 for every £2 of income above £100,000. For the current year, the allowance is reduced to nil after net adjusted income exceeds £116,210. For the 2013/14 tax year the allowance is reduced to nil when net adjusted income exceeds £118,880.
Investors will see some benefit from the outlined changes, with the annual exempt amount for capital gains tax due to rise to £11,000 for 2014/15 and £11,100 for 2015/16. No announcement was made in respect of 2013/14.
The inheritance tax nil-rate band, which has been fixed since 6 April 2009, will rise from £325,000 to £329,000 in 2015/16.
The limit for contributions to an ISA will rise from the current level of £11,280 to £11,520 from April 2013, a rise of 2.1%
The two main limits on tax relief for pension saving are being reduced, (although this will mainly affect the top 1 to 2 % of pension savers).
From the 2014/15 tax year, the lifetime allowance for tax-free pension saving will be cut from £1.5m to £1.25m. The annual allowance (i.e. the maximum tax free annual contributions allowed to a pension scheme) will also be cut from £50,000 a year to £40,000. Contributions paid in excess of this amount are unlimited but will give rise to a tax charge on the pension scheme member.
A transitional ‘fixed protection’ regime will be introduced for those who believe they may be affected by the reduction in the lifetime allowance.
The main rate of corporation tax is set at 24% from 1 April 2012 and 23% from 1 April 2013. The Chancellor has announced that the rate from 1 April 2014, which was planned to be 22%, will be reduced by an additional 1% to 21%.
The small company rate will remain at 20%.
The AIA provides a 100% deduction for the cost of plant and machinery purchased by a business up to an annual limit which is currently £25,000 (with effect from April 2012). The Chancellor announced that this limit will rise tenfold to £250,000 for a period of two years from 1 January 2013.
This significant increase should mean that many businesses will get an immediate write off for their purchases of equipment after 1 January 2013, although care should be taken with regard to accounting periods which straddle 1 January 2013. No details have been provided as to how the AIA will be computed for such periods.
The amount of AIA available to a business for a current accounting period will depend on when that accounting period began and when it ends. A 12 month period from 1 March 2012 to 28 February 2013 will cover a period in which there have been three different AIA limits. However, our general advice to any businesses who were planning to make significant asset purchases in December would be that they should consider delaying for a few weeks to benefit from the increased relief.
New low emission cars purchased by a business currently qualify for a 100% first year allowance (FYA). Under the current rules, the allowance is available where a car’s emissions are below 110gm/km. This allowance is to continue for a further two years for purchases from 1 April 2013 but only where emissions do not exceed 95gm/km.
Cars with emissions between 111-160gm/km currently qualify for main rate writing down allowance (18%). The emissions threshold is to be revised down to 130gm/km for additions from 6 April 2013 for income tax (1 April 2013 for companies).
There are in excess of 150 models that can be purchased the current tax year which qualify for the 100% FYA. The number falls to less than 30 in the next tax year.
The Chancellor has announced that two more sites in Wales will qualify for enhanced first year allowances. The sites are within the Enterprise Zones at Ebbw Vale and the Haven Waterway.
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