Yesterday, the 2013 Budget was announced and this post looks specifically at the personal taxation changes in more depth. Read on to learn more about the implications to you.
Firstly, the personal allowance increased to £10,000 in 2014/15 and the higher rate threshold increased by £415 to £41,865. Download a table of the personal taxation changes here.
Income tax and national insurance contribution
For 2013/14 the personal allowance will rise from £8,105 to £9,440 and there will be a £2,360 reduction in the basic rate band from £34,370 to £32,010. The additional rate of tax will fall from 50% (42.5% for dividends) to 45% (37.5% for dividends).
For 2014/15 the personal allowance will rise by £560 to £10,000 and the basic rate band will be cut by £145 to £31,865. The personal allowance will then be increased in line with the Consumer Prices Index (CPI) from 2015/16.
TIP: Protect your personal allowance. In 2013/14 your personal allowance is reduced by 50p for every pound your income is over £100,000. If you can reduce your income below £100,000, e.g. by making a pension contribution or choosing tax-efficient investments, you should benefit from the full allowance.
Income tax exemptions for non-resident athletes
Any income arising to non-resident competitors in relation to the London Anniversary Games in 2013 or the Glasgow Commonwealth Games in 2014 will be exempt from UK income tax.
Seed Enterprise Investment Scheme (SEIS)
Investors who make capital gains in 2013/14 will receive capital gains tax (CGT) relief on 50% of any gains they reinvest into SEIS companies in either 2013/14 or 2014/15. The qualifying conditions attached to the SEIS will be amended so that from 6 April 2013 an investment into a company established by corporate formation agents can qualify for the scheme.
Community Investment Tax Relief (CITR)
CITR requirements that currently place conditions on the speed with which Community Development Finance Institutions must lend on the funding they receive will be relaxed to allow investors to carry unused relief forward from April 2013. New limits will be placed on the amount of CITR an investor company can obtain in any three year period.
Social investment tax relief
By summer 2013 the government will consult on the introduction of a new tax relief to encourage investment in social enterprises, with a view to introducing legislation in Finance Bill 2014.
Statutory residence test and reform of ordinary residence
From 6 April 2013 a statutory definition of tax residence will apply and the concept of ordinary residence will be abolished for most tax purposes. Overseas workday relief will be available to any non-domiciled individuals who arrive in the UK following a period where they have been non-resident for at least three tax years. The statement of practice (SP1/09) which provides an administrative easement for employees who claim overseas workday relief will be put on a statutory basis from 6 April 2013.
A package of simplification measures will be introduced in Finance Bill 2013 and Finance Bill 2014 following the review by the Office for Tax Simplification (OTS) of tax-advantaged share schemes and subsequent consultation. The government will consult on a number of the recommendations of the OTS’s review of non-tax advantaged (unapproved) share schemes.
Beneficial loans to employees
The exempt threshold for small loans to employees will rise from £5,000 to £10,000 from 6 April 2014.
Income tax rules on interest
Finance Bill 2013 will introduce legislation on disguised interest and on deduction of income tax from interest on compensation payments, interest in kind and interest on ‘specialty debts’.
Child Trust Funds
The government will consult on the options for transferring savings held in Child Trust Funds into Junior ISAs.
There will be a consultation about making it easier to claim Gift Aid through a wide range of digital giving channels, including options to allow donors to complete a single Gift Aid declaration to cover all their donations through a specific channel.
For tax purposes, assets held in trusts for vulnerable beneficiaries will be treated broadly as if they were held directly by the vulnerable person. The qualifying age for a child under employer-supported childcare will be extended if the child is receiving disability living allowance.
A new tax free childcare scheme will be introduced for children under 12 that will ultimately provide support worth 20% of childcare costs up to £6,000 per child per year. The system will be phased in from autumn 2015, with all children under five eligible from the first year of operation. Disabled children up to age 16 will also be eligible in line with existing employer-supported childcare rules.
Tax free childcare will be available to families where the parents are working and are not already receiving support through tax credits or Universal Credit. It will be available if neither parent earns over £150,000 a year. Alongside the new scheme, the current employer-supported childcare will be phased out for new applicants from autumn 2015.
THINK AHEAD: Take care in choosing your next company car. Company car tax scales have been revised for 2013/14 and will be changing every year through to 2016/17. If you are swapping your car, make sure you know what tax you will pay now and in the future.
Company cars and vans
From 6 April 2014 the fuel benefit charge multiplier will increase in line with the Retail Prices Index (RPI) for both cars and vans. The van benefit charge will be unchanged at £3,000 for 2013/14 and will increase in line with the RPI from 6 April 2014.
Payments of up to £500 by employers on health-related interventions recommended by a health and work assessment and advisory service (which is yet to be launched) will not be treated as a taxable benefit in kind. There will be a consultation on implementation later in 2013.
The lifetime allowance (LTA) for pensions will reduce from £1.5 million to £1.25 million for 2014/15 and subsequent years. A new fixed protection regime will be introduced to prevent any retrospective tax charges following the reduction of the LTA. The government will also consult on the details of an individual protection regime in spring 2013, with legislation to be included in Finance Bill 2014. The annual allowance for pension contributions will reduce from £50,000 to £40,000 for 2014/15 and subsequent years.
From 6 April 2013 the tax and NIC incentives for employees and employers will be removed from arrangements where an employer pays a pension contribution into a registered pension scheme for an employee’s spouse or family member as part of a flexible remuneration package.
THINK AHEAD: Maximise pension tax relief while you still can. The pension annual allowance will be cut to £40,000 in April 2014 and the lifetime allowance will fall to £1.25m. Take advantage of the generous carry forward rules and, if appropriate, the new transitional protection options to maximise your retirement provision while you still have the opportunity.
The capped drawdown limit for pensioners of all ages will rise from 100% to 120% of the value of an equivalent annuity from 26 March 2013. The Government Actuary’s Department (GAD) will review the pension drawdown table and the underlying assumptions that are used to provide drawdown rates to ensure they continue to reflect the annuity market.
The Pensions Regulator (TPR) will be given a new objective to support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer and fully consistent with Pensions Act 2004. The precise wording will be set out in draft legislation that the Department for Work and Pensions (DWP) will publish in spring 2013.
There will be a consultation on whether self-invested pensions could be allowed to take advantage of the conversion of unused space in commercial properties to residential use.
Qualifying recognised overseas pension schemes (QROPS)
QROPS will need to notify HMRC every five years that they continue to meet the requirements to be QROPS. Former QROPS will also have to continue to report payments out of transfers received while they were QROPS and there will be additional reasons for excluding a pension scheme from being a QROPS.
State pension reforms
The government has confirmed that the single-tier state pension will be introduced from April 2016, a year earlier than previously planned. The State Second Pension (S2P) will close and contracting out (and the associated NIC rebates) will be abolished. The current value of the contracting out rebate for defined benefit schemes is 3.4% for employers and 1.4% for employees on earnings between the lower earnings limit and the upper accruals point. Contracting out via money purchase arrangements ended on 5 April 2012.
From April 2013 the tax rules on the payment of bridging pensions will be aligned with DWP changes to state pension age.
If you would like to discuss any of the points raised in this post, please do not hesitate to contact a member of our team.