Towards the end of last year, there were a couple of important events in the world of personal taxation. First was the Chancellor’s autumn statement on November 29 and a week later we had the issue of some draft clauses for the Finance Bill 2012. How has the advice that might be given to clients changed as a result of the proposed new measures?
The simple answer is that, in the majority of areas, it will not have changed significantly at all. In his autumn statement, George Osborne told us very little that we did not already know. The income tax personal allowance will increase by £630 to £8,105 for 2012/13, with a corresponding reduction in the higher-rate tax threshold from £35,000 to £34,370. Corporation tax rates will continue to decrease, with the main-stream rate reducing to 25 per cent from April 1, 2012, as the Government continues to try to reduce the burden of taxation on our businesses.
To help re-energise the economy, the Government will encourage investment into new start-up companies through the enterprise investment scheme by offering income tax relief at 50 per cent to people investing in qualifying companies up to an annual investment limit of £100,000.
In addition, there will be a capital gains tax exemption for gains realised on disposal of an asset in 2012/13 and invested in a start-up EIS company in the same year. Theoretically, a capital gains tax saving of 28 per cent and income tax relief at 50 per cent looks quite attractive but whether potential investors will view it in the same way remains to be seen.
As far as the draft Finance Bill clauses were concerned, one thing that was quite eagerly awaited was the Government’s proposals for a statutory definition of UK residence. This had been the subject of a consultation document earlier in the year and the new definition was expected to apply from April 6, 2012.
However, the Government announced that this will now be deferred until April 6, 2013, which probably reflects the complexity of trying to get a statutory definition that everyone is happy with and the extra year will provide plenty of time for further consultation on this issue.
Draft clauses were included to further change the taxation treatment of UK resident but non-domiciled individuals from April 6, 2012. The main change is that individuals who want to retain the ability to use the remittance basis of taxation and who have been resident in the UK for at least 12 of the previous 14 tax years will have to pay an annual charge of £50,000 as opposed to the current £30,000.
Draft clauses also gave some more detail on the idea contained in the March 2011 Budget to leave up to 10 per cent of an estate to charity on death and get a consequent 10 per cent reduction in the rate of inheritance tax.
Again, a consultation document was issued last year. This proposal is also due to take effect from April 6, 2012 and could lead to some quite complex calculations. For example, an individual, as well as having a “free” estate, may also have jointly owned assets which will pass automatically to the surviving joint tenant, an interest in certain types of trusts and possibly even a situation where the deceased has made gifts during their lifetime but has retained a benefit from the assets gifted away.
All in all, no major surprises and the next important date is the Budget on March 21. However, with the economy still struggling and a real danger of the country sliding back into recession, it seems hard to believe that Osborne will be giving us much to cheer about in a couple of months.
Brian Murphy is senior financial planning manager at Axa Wealth