A quick glance at the budget highlights
Chancellor of the Exchequer, George Osborne, delivered his third budget on 21 March 2012, much of which had been “leaked” to the press beforehand and therefore contained no major surprises.
A summary of the key points are set out below.
Individuals
Whilst the 2012/2013 tax rates and allowances were already known, a widely anticipated increase to the personal allowance threshold for individuals from April 2013 was announced. The earning threshold at which tax becomes payable will increase by £1,100 to £9,205. However, as with all recent personal allowance increases, the level at which higher rate (40%) tax is paid will be reduced, so that only basic rate tax payers benefit from this increase.
The 50% additional tax rate paid by those earning over £150,000 per annum will be reduced to 45%, also from April 2013. However there are no changes to the tapering of the personal allowance once income levels reach £100,000.
Pensioners
The Chancellor announced that age-related allowances for those aged 65 and over will be frozen from April 2013. This will mean that anyone that turns 65 after 5th April 2013 will only be entitled to the increased personal allowance of £9,205, and not the additional age-related allowance that is currently in existance for those aged over 65. It is expected that over time, the personal allowance will increase to be in line with current age-related allowances, and that current age-related allowances are phased out.
Those that currently receive additional age-related allowances – £10,500 for those born after 5 April 1938 but before 6 April 1948, and £10,660 for those born before 6 April 1938 – will keep the allowances at the levels they currently receive, and these will not rise by inflation as they have done in previous years
It was also announced that simplification of state pensions is to continue, with the merging of the basic state pension and the second state pension in to a flat rate weekly amount, expected to be around £140 per week. Whilst many will gain from this, it is also likely that thousands will lose out.
Businesses
Corporation tax rates paid by larger companies were set to fall to 23% by 2014. However the Chancellor announced a further immediate cut in the main rate from April 2012 to 24% (this was previously set to reduce to 25%) and further 1% cuts each year until the main rate reaches 22% by 2014.
No changes to the small profits rate were announced and this will remain at 20% for the time being. Profits that fall into the marginal rate band will see a reduction to the rates paid, however.
Stamp Duty Land Tax
Another widely leaked measure was the increase to stamp duty land tax, which has increased to a rate of 7% for residential properties costing over £2m, with effect for completions from 22 March 2012. For those residential properties over this value purchased by a ‘non natural person’, the rate has risen to 15%.
These rates do not apply to non-residential or mixed use property, for which the rate remains at 4% for purchases costing over £500,000.
VAT
No changes to the rates of VAT were announced, with the main rate remaining at 20%. The VAT registration threshold was increased to £77,000 effective from April 2012, and the deregistration threshold increased to £75,000. Other VAT thresholds relating to the flat rate scheme, and cash accounting scheme, were not changed.
The Government also announced that it will remove some of the VAT anomalies mainly relating to supplies of catering, sports drinks, self storage, hairdressers’ chair rental, holiday caravans and alterations to listed buildings. These changes will take place from 1 October 2012.
A cap on unlimited tax reliefs
Legislation will be introduced from 6th April 2013 to apply a cap to tax reliefs claimed by individuals. These reliefs are currently unlimited. The cap will be the greater of £50,000 or 25% of income, and draft legislation on this is due to be published later this year.
Capital Gains Tax
Capital Gains Tax rates and allowances have been frozen for 2012/2013. This means that the annual exemption will be £10,600, and the rates for gains that fall within an individual’s basic rate tax band will be 18%, and any excess gains will be taxed at 28%.
There is also no change to the Entrepreneurs Relief rate of 10% on lifetime gains up to £10m.
Pension contributions tax relief
It was widely expected that the current levels of tax relief for pension contributions would be decreased, however the maximum annual allowance will remain at £50,000 before payment of an annual allowance charge. There is also the ability to increase this limit by bringing forward any unused relief from the previous three tax years, using the earliest year first.
The lifetime allowance is reduced to £1.5m from £1.8m from 2012/2013.
Fuel Duty and other vehicle matters
Unfortunately, the proposed increase in fuel duty of 3p per litre from August 2012 will still go ahead. Inflationary increases to Vehicle Excise Duty will also be implemented from April 2012 except for road hauliers for whom it will be frozen. There will also be further increases to the costs of car and fuel benefits for employees.
Further details of the 2012 Budget can be found at http://www.perry-company.co.uk/BR12.pdf
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