2013 Budget Update
22 March 2013
- George Osborne March 2013
In a very vocal parliamentary session, during which the Deputy Speaker of the House had almost as much to say as the Chancellor, George Osborne laid out the Government’s plans for the country’s finances in his 2013 Budget Speech. During his delivery to the Commons, Britain was described as an “aspiration nation” (ten times!), but do the changes match up to your aspirations?
First, let’s quickly recap on some of the provisions effective from 6 April 2013 that we’ve known about for a while:
- The basic personal allowance, for those entitled to it, increases to £9,440.
- Age related allowances are frozen this year, and will eventually be brought in line with the basic allowance.
- The income level at which personal allowances start to be restricted remains at £100,000.
- The 20% basic rate band is reduced to £32,010.
- The inheritance tax (IHT) nil rate band remains frozen at £325,000 until 2017/18.
- The additional rate of tax applying to taxable income in excess of £150,000 reduces from 50% to 45%.
- The main rate of corporation tax reduces by 1% to 23%, and down to 21% from 2014.
- The new statutory residency test for those coming to or leaving the UK will come into effect as proposed.
- The emissions threshold for capital allowances on cars reduces to 130 g/km, with cars above this receiving allowances at only 8%.
- Capping of previously unlimited reliefs will come into effect as proposed, restricting reliefs affected to the higher of £50,000 or 25% of income.
- The pension lifetime allowance will reduce to £1.25 million, and the annual allowance for pension contributions to £40,000, from 6 April 2014.
- The ISA limit from 6 April 2013 will be £11,520.
- The Government will introduce a disincorporation relief for five years from April 2013. This will allow a company to transfer goodwill and land to its shareholders without incurring corporation tax on the transfer. The relief will be available to businesses with total qualifying assets not exceeding £100,000.
The announcements made in the 2013 Budget are wide ranging, but some of the headline changes can be summarised as follows:
Income tax and national insurance
- The basic personal allowance will increase to £10,000 from 6 April 2014, with the basic rate band being reduced to £31,865.
- The limit on loans which an employer can provide to employees interest free, without giving rise to a taxable benefit-in-kind, has been doubled to £10,000 from 6 April 2014.
- The lower “contracted-out” rates of employees’ NIC for members of defined benefit employee pension schemes will disappear from April 2016. Those affected will pay higher NIC as a result, but will be entitled to a larger state pension when they retire.
Capital gains tax
- The annual CGT exemption for the 2013-14 tax year will be £10,900, with the 18% and 28% rates of CGT remaining unchanged.
- The Seed Enterprise Investment Scheme (SEIS) capital gains tax reinvestment relief (which enables investors to shelter capital gains by reinvesting in SEIS) was initially limited to gains made in 2012/13. The relief has now been extended to 2013/14, although the amount of the relief will be restricted to half of the reinvested gains.
- Last year’s Autumn Statement introduced the concept of “employee shareholders”, who would receive shares in their employer in exchange for giving up certain employment rights. The Budget confirms that such employees will be exempt from CGT on shares up to £50,000 in value, granted under “employee shareholder” arrangements from 1 September 2013. In addition, the first £2,000 of shares will be exempt from income tax and NIC.
- Measures will be introduced in the 2014 Finance Bill for a new CGT relief on the disposal of a controlling interest in a business into an employee ownership structure.
- The turnover threshold for VAT registration increases from £77,000 to £79,000 from 1 April 2013.
- From 6 April 2013, small businesses will be able to opt for a cash basis of accounting, rather than considering accruals and prepayments.
- From 6 April 2015, the rate used to calculate company car benefit on vehicles with a CO2 figure of up to 50g/km will increase to 5%. The rate for those between 51 to 75g/km will increase to 9%.
- The 2015 Finance Bill will extend the current 100% tax relief available for the purchase of cars with low CO2 emissions and electric cars to March 2018.
- An “Employment Allowance” of £2,000 per annum is proposed, reducing the employer’s NIC bill for all businesses from April 2014.
- The main rate of corporation tax will be reduced by a further 1%, to 20%, from 1 April 2015. From that date, there will therefore be no difference between the main and the small profits rate of corporation tax.
- An “above the line” Research and Development tax credit of 10% will be available to large companies with no tax liability, for costs incurred after 1 April 2013.
- From 20 March 2013, anti-avoidance rules will be brought in concerning the timing of making and repaying close company loans to participators (generally, shareholders), and loans to partnerships where a partner is a participator.
- The IHT exemption for transfers between a UK domiciled individual and their non-UK domiciled spouse will increase from £55,000 to the standard nil rate band of £325,000 from 6 April 2013. It will also be possible for non-UK domiciled individuals to elect to be treated as domiciled in the UK for IHT purposes.
- Last year’s Budget changes to the taxation of UK residential properties worth more than £2million, owned by 'non-natural persons' (broadly, companies, partnerships with a corporate member and collective investment schemes) have been confirmed, and some further measures introduced.
- A new anti-avoidance rule is proposed, to limit the deductibility of debts for inheritance tax purposes. From Royal Assent, no IHT deduction will be allowed for a liability incurred to acquire property outwith the charge to IHT, and where a debt was incurred to buy an asset qualifying for an IHT relief, the debt will reduce the value of that asset before any relief is applied.
- Legislation will be introduced in the 2014 Finance Bill to abolish stamp duty on transactions in shares in UK companies listed on growth markets, including the Alternative Investment Market (AIM).
- A new scheme to relieve an element of childcare costs will be introduced from Autumn 2015, aimed at families where both parents work but neither earns in excess of £150,000 per annum. Those eligible will be able to save 20% on costs of up to £6,000 per child per annum.
- Care costs for the elderly will be subject to a cap of £72,000 from April 2016, with the asset threshold for means tested care costs increasing from £23,000 to £118,000.
- A General Anti Abuse Rule (GAAR), targeting “abusive avoidance schemes” is to be introduced in the 2013 Finance Bill and will take effect once the Bill receives Royal Assent later this year. HMRC have also published their “No Safe Havens” offshore evasion strategy, aimed at those perceived as using offshore “tax havens” to evade tax.
- The introduction of a Single Tier state pension has been brought forward to April 2016. The flat rate is expected to be around £144 a week in “today’s money”.
Considerable time was spent on other measures, such as ex-gratia payments to those who bought Equitable Life With-Profits Annuities before 1 September 1992, and the “Help to Buy” Mortgage Guarantee and Equity Loan schemes, aimed to increase the availability of mortgages and assist in the purchase of new-build homes. While not directly tax related, the latter points certainly reflect the aspirational theme which was present during the speech. The question is, will the 2013 Budget make the nation feel aspirational, as the Chancellor predicts? Or will you just remember where you were when you learned that the cost of a pint of beer would be coming down?
As always, the devil is in the detail, and more information will circulate over the next few weeks. You can find our 2013-14 Tax Card here summarising some of the 2013 Budget changes, and we will be looking at a selection of these topics in forthcoming enewsletters. Until then, if you’d like to discuss any of the above changes and how they might affect you, please get in touch with your usual Springfords contact or give Fiona Donaldson or Ian Haynes a call.
This is a general guide which is intended to give background information and is not a substitute for taking specific advice based on your particular circumstances.