FPC Budget comment
No real surprises
Aside from the controversial “granny tax” there was little to surprise us in the budget due to the advance announcements that the 50% tax rate would reduce to 45% from April 2013 and personal allowances would be increased.
Pensions tax reliefs
Good news here that the various rumours about changes to tax free cash and contribution limits proved unfounded. The annual allowance remains at £50,000 and carry forward of unused relief is still available, so there will be an opportunity for some to capitalise on the last chance to secure 50% tax relief over the coming year.
Details of the next step towards a flat rate of £140 per week state pension will be announced soon and in the summer, proposals will be set out to review state pension age to reflect increased life expectancy – expect age 75 retirement dates for your children!
Income drawdown limits
Despite strong lobbying, there were no changes on income limits, which have been drastically reduced following the reduction of the maximum limit combined with the impact of falling gilt yields. We expect pressure to continue to review the position, but in the absence of any changes, we are working with our clients to ensure their income position is supported from other capital assets in the most tax efficient manner possible.
Cap on tax reliefs
A big change here was to introduce a cap on tax reliefs of 25% of total income for anyone claiming more than £50,000 in a year from 2013/14. This only applies to reliefs that are currently unlimited, so pension funding is unaffected, but this will restrict charitable giving, which would appear to be an unfortunate and perhaps unintended consequence.
Personal allowance still reduced on income over £100,000
From 6th April 2012, the personal allowance is reduced progressively for those earning between £100,000 and £116,210, resulting in an effective tax rate of 60%. This can be still be avoided by making a pension contribution and/or charitable donation.
Thankfully, there’s no change to Entrepreneurs Relief or Capital Gains Tax this time around, which gives business owners significant tax advantages on exit.
On the Inheritance Tax (IHT) front, there’s a few good moves with consultation in the pipeline over changes to simplify the calculation of the 10 yearly tax anniversary and exit charges on Trusts and an increase in the amount a UK domiciled spouse can transfer free of IHT to a non-domiciled spouse.
We have clients who will be affected by both changes and we will report further details once the outcome of the consultation is known.
Stamp duty rise
In a surprise move from Budget day, a new Stamp Duty rate of 7% will apply to homes valued at over £2m and there will a 15% rate applied to those acquiring property via offshore companies.
Many of our clients with London properties will be affected by this move and it is likely to have an impact on the property market in the South East in particular.
As always, please do call us for guidance at any time.