Detailed summary of the 2012 budget

1. Budget 2012
21 March 2012
This presentation is for general information only and is not intended to be advice to any specific
person. You are recommended to seek competent professional advice before taking or refraining
from taking any action on the basis of the contents of this presentation.
This presentation represents our understanding of law and HM Revenue & Customs practice as
at 21 March 2012.

2. Budget themes
• Austerity to continue
• Borrowing in 2011/12 expected to be £1bn below previous
forecast – still over £125bn
• 2012 economic growth 0.8% – 0.1% up on earlier forecast
• Steady as she goes:
 Draft Finance Bill 2012 clauses published last December.
 Most tax and benefits changes announced alongside
Autumn Statement.
 No scope for giveaways.
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3. Personal tax allowances
• Main allowance rises by £630 to £8,105 in 2012/13
 Benefit clawed back from higher rate taxpayers through
smaller basic rate band.
 Other allowances generally rise by 5.6%.
• Main allowance rises by £1,100 to £9,205 in 2013/14
 But basic rate band shrinks to £32,245.
 So higher rate taxpayers only receive a quarter of basic
rate tax payer’s benefit from allowance increase.
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4. Personal tax allowances
• Personal allowance phased out above £100,000
 No indexation of limit.
 Allowance reduced by £1 for each £2 of excess.
 No personal allowance above:
- £116,210 income in 2012/13
- £118,410 income in 2013/14
 Effective marginal tax rate 60% in band above £100,000
until allowance lost completely.
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5. Personal – income tax rates
• Starting rate of tax 10% up to £2,710
 Not available if non-savings taxable income >£2,710
• Basic rate up to £34,370 – a drop of £630
 20% generally, but 10% for dividends
 Another £2,125 drop to £32,245 in 2013/14
• Higher rate up to £150,000
 40% generally, but 32.5% on dividends
• ‘Additional rate’ over £150,000 – no indexation
 50% generally, but 42.5% on dividends
 Cut to 45% (37.5% dividends) from 2013/14
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6. Child benefit
• Original plan
 £20.30 pw and £13.40 pw
 Lost if 1p of higher rate tax paid
 Based on individual not joint income
 ‘Bizarre and economically damaging set of incentives’ – IFS
• New plan
 From 7/1/13, all benefit is lost if income £60,000 or more
 Phased out from £50,000 income as tax charge
 1% child benefit charge per £100 of income over £50,000
 Effective 57.52% overall ‘tax’ rate for two-child family
 Joint income issue ignored
 Inter-spouse transfer or withdrawn claim?
 Pension contribution
www.simpson-wood.co.uk

7. Tax credits
• Child tax credit
 Family element worth up to £545
 Currently phased out at £40,000 of (joint) income
 For 2013/14, phasing generally starts much earlier:
- Typically lost for income > £26,000 for one child
- Typically lost for income > £32,200 for two children
• Other tax credit changes
 50+ element will end
 Backdating cut to one month
 First £2,500 of income fall ignored for in-year increases
 24hrs, not 16hrs work, for couples’ working tax credit
www.simpson-wood.co.uk

8. Personal tax – ISAs
• Higher limits
• 2012/13 maximum investment £11,280
• 2012/13 cash element £5,640
• Junior ISA launched November 2011
 £3,600 limit – cash or stocks & shares
 No change for 2012/13
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9. Life policies
• An effective £3,600 cap on total premiums payable to
qualifying life policies from April 2013
 Higher contributions will mean benefits are potentially
taxable
 Transitional reliefs promised
• New rules to prevent avoidance through:
 Shifting gains between policyholders
 Interdependent clustered policies
www.simpson-wood.co.uk

10. Personal tax – VCT and EIS
• EIS
 Income tax relief limit doubles to £1,000,000 each tax year
• VCT and EIS investment companies – April 2012
 Up to 249 employees
 Gross assets up to £15 million
 Investment up to £10 million
 New ‘disqualifying investment’ rules
 No feed-in-tariffs or share acquisitions
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11. Personal tax – Seed Enterprise
Investment Scheme (SEIS)
• 50% income tax relief
• CGT reinvestment exemption – 2012/13 only
• Maximum total investment £100,000 per tax year
• Very small, new companies:
 No more than two years old
 Conduct genuine new business
 Fewer than 25 employees
 Gross assets no more than £200,000
 £150,000 maximum total capital raised
• Due diligence and monitoring costs?
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12. Personal tax reliefs
• New limit on income tax reliefs from 2013/14
• Applies only to uncapped reliefs, e.g. qualifying interest
• If more than £50,000 of relief claimed, relief limited to
greater of
 25% of income
 £50,000
• Government will consult to ensure this ‘will not impact
significantly on charities that depend on large donations’
www.simpson-wood.co.uk

13. Cars and vans
• Company car benefit April 2012
 Reworking of CO2 bands
 75g/km or less – 5% charge
 76g/km -99g/km – 10% charge
 100g/km and above: 11% + 1% for each 5g/km
 Further 1% increase in scale rates in 2013/14
 Big jumps for some low emission vehicles
• Fuel benefit
 Basis figure for cars rises to £20,200, vans unchanged
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14. National insurance contributions
• Limits
 Lower earnings limit rises to £107 a week for 2012/13
 Primary (employee) threshold rises to £146 a week
 Secondary (employer) threshold rises to £144 a week
 Upper earnings limit stays to £817 a week
• Rates
 Main rates unchanged
• Contracting out
 Only available for defined benefit schemes in 2012/13
- Many (re)joining state second pension (S2P)
 NIC rebates cut by 0.3% (employer) and 0.2% (employee)
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15. Pensions
• Annual allowance left at £50,000 for 2012/13
 Follows cut for 2011/12 from £255,000 to £50,000
 Annual allowance charge matches tax relief given
 Three year ‘carry forward’ facility offers opportunity to grab
50% relief on contributions up to £200,000 in 2012/13
• Lifetime allowance falls to £1.5m in 2012/13
 Future allowance increases very unlikely in short term
 ‘Fixed protection’ option must be claimed by 5 April 2012
- Implies no further contributions after 5 April 2012
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16. Capital taxes
• CGT rate and annual exemptions 2012/13
 Rates of tax 18% / 28%
 Individual £10,600
 Trusts £5,300
• IHT
 Nil rate band stays frozen at £325,000
 36% estate rate for 10% charitable gifts
• Stamp taxes
 £250,000 first buyer threshold ends 24 March 2012
 7% SDLT on properties over £2m from 22 March 2012
 Attack on SDLT avoidance via offshore companies
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17. Corporation tax
• Main rate from April 2012: 24%
 2% cut from 2011, when 1% was expected
 Falls to 22% in 2014
• Small profits rate from April 2012: 20%
• Effective marginal rate from April 2012: 25%
• Thresholds remain at 1994 levels
 Up to £300,000
 £300,000 – £1.5 million
 Over £1.5 million
• Bank levy increased so banks will not benefit overall
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18. Capital allowances, R&D reliefs
• Annual investment allowance falls to £25,000 from April
2012
 But all may not be lost
• Main plant and machinery (P&M) rate of writing down
allowance fall to 18% in 2012
• Rate of R&D tax credit for SMEs rises to
 225% from April 2012
 £10,000 minimum expenditure requirement removed
• New ‘above the line’ R&D credit from April 2013
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19. VAT
• VAT rates: no change
• Turnover limits
 Registration limit £77,000
 Deregistration limit £75,000
• Fuel scale charges
 Revised upwards
• Low value consignment relief
 VAT-free imports from Channel Islands end after 31 March
2012
• All returns and payments online from 1 April 2012
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20. Non-domiciles etc
• £50,000 annual charge for those with 12 or more years UK
residence from 2012/13
• Exemption for remittances used for commercial investment
in UK business (quoted or unquoted)
• Some minor simplification of the rules
• No more changes in this Parliament
• New statutory residence test delayed until 2013
• ‘Ordinary residence’ concept to disappear in 2013
www.simpson-wood.co.uk

21. Tax simplification
• 36 ‘outdated’ reliefs to be abolished
 Some in Finance Bill 2012, some by regulations
 Tax reserve certificates
 Luncheon vouchers (from 2013/14)
 Life assurance premium relief from (2015/16)
 Black beer
 Angostura bitters
www.simpson-wood.co.uk

22. Budget 2012
21 March 2012
This presentation is for general information only and is not intended to be advice to any specific
person. You are recommended to seek competent professional advice before taking or refraining
from taking any action on the basis of the contents of this presentation.
This presentation represents our understanding of law and HM Revenue & Customs practice as
at 21 March 2012.