Let’s look at the 2012 Budget

The contents of George Osborne’s third Budget were so well rehearsed by politicians, pundits and papers, that the real thing threatened to be an anti-climax.

Was there anything left that the Chancellor could surprise us with, especially as he had such little fiscal room for manoeuvre?

The answer was both yes and no. After all the rumours about 50 per cent, 45 per cent or even 47 per cent income tax, Mr Osborne decided to make the change to 45 per cent from April 2013. His 2013/14 increase in the personal allowance, allowed him to start phasing out the age allowance – an unexpected revenue-raising ploy.

The stamp duty land tax increase for homes valued at £2m or more, was well telegraphed, and accompanied by some unexpectedly severe anti-avoidance provisions that could affect existing owners.

The impact of the child benefit removal for higher earners was softened by increasing the threshold and phasing it in. However, people with very large incomes could be pained by the proposed new limit on total income tax reliefs.

Dental practices should be pleased with the predicted reduction in corporation tax rates, and the surprise uplift in the enterprise management incentive (EMI) limit.

There were many anti-avoidance provisions including proposed consultations on a general anti-avoidance rule.

Highlights

  • Personal allowance (the amount of money that someone can earn before they pay any tax at all) to be increased to £9,205 in 2013/14.
  • The higher rate threshold reduced by £1,025 to £41,450.
  • Age allowance to be frozen from 2013/14 and then phased out.
  • Limit on maximum amount of income tax reliefs that can be claimed from 2013/14.
  • Additional rate of income tax (also known as the 50p, or 50%, rate of tax) reduced to 45 per cent from 2013/14.
  • 7 % stamp duty rate for residential properties valued at over £2m and new measures to counter ownership through corporate entities.
  • No changes to main pensions tax reliefs.
  • Child benefit to be phased out where income is over £50,000.
  • Corporation tax main rate cut to 24 per cent from April 2012 and to 22 per cent by April 2014 – making incorporation even more attractive than ever.
  • A further tightening of the car benefit rules through to 2016/17 – incorporated practices should take care as to whether personal vehicles are acquired in the name of the company or in the name of the individual.

Income tax bands, rates and personal allowances

All income tax rates for 2012/13 will remain at their 2011/12 levels. For 2013/14, the personal allowance will rise from £8,105 to £9,205 and there will be a £2,125 reduction in the basic rate limit from £34,370 to £32,245.

From 2013/14, there will be no increase in the age-related personal allowances, and their availability will be restricted to people born before April 6 1948 for the allowance worth £10,500; and April 6 1938 for the allowance worth £10,660. The aim is to phase out the age-related allowances within a few years.

For 2013/14, the additional rate of tax will be reduced from 50 per cent to 45 per cent (from 42.5 per cent to 37.5 per cent for dividends). The rates of tax for trusts will be similarly reduced.

Cap on unlimited income tax reliefs

A cap will apply to income tax reliefs that individuals will be able to claim from April 6 2013. The cap will apply only to reliefs that are currently unlimited – e.g. qualifying interest payments. For anyone seeking to claim more than £50,000 in reliefs, a cap will be set at 25 per cent of income (or £50,000, whichever is greater).

Child benefit

Child benefit will be withdrawn for households where a parent or partner has income of over £50,000 a year. This will happen so that child benefit begins to be lost from £50,000 of income, and is completely lost by the time income reaches £60,000.

Taxation of pensions

Several previously announced changes to pensions take effect from April 6 2012, including a reduction in the standard lifetime allowance, from £1.8 million to £1.5 million. However, the new (and good) news is that there will be no change to the £50,000 annual allowance.

Capital gains tax (CGT): annual exempt amount

The CGT annual exempt amount will remain at its 2011/12 level of £10,600 for 2012/13. From April 6 2013, it will rise in line with the consumer prices index (CPI), instead of the retail prices index (RPI), as announced in the Budget 2011.

Inheritance tax (IHT): threshold

The IHT nil-rate band (NRB) will be frozen at £325,000 until April 2015. Also, as previously announced, the NRB will then rise in line with the CPI.

Stamp duty land tax (SDLT) rates

A new SDLT rate of 7 per cent for residential properties over £2 million will apply from March 22 2012. A 15 per cent rate of SDLT will apply to residential properties over £2m purchased by companies and certain other non-natural persons from March 21 2012. In addition, there will be consultations on the introduction of an annual charge on residential properties valued over £2m already owned by such persons, with the intention that the measure will come into effect in April 2013.

Corporation tax

The main rate of corporation tax (CT) will fall to 24 per cent from April 1 2012, rather than the previously announced rate of 25 per cent. It will then be reduced to 23 per cent from April 1 2013, and to 22 per cent from April 1 2014. The small profits rate will continue to be 20 per cent from April 1 2012.

You may save tax by trading through a company. Profits retained in a company, may be taxed at only 20 per cent – compared with up to 50 per cent income tax, plus NICs, making the incorporation of a sole trader dental practice into a limited company potentially even more attractive

General anti-abuse rule (GAAR)

The Government accepts that a GAAR targeted at artificial and abusive tax avoidance schemes would improve the UK’s ability to tackle tax avoidance, while maintaining the attractiveness of the UK as a location for business investment. The Government will consult on this in summer 2012. The GAAR will also be extended to SDLT. The intention is to introduce legislation in Finance Bill 2013.

First published in The Probe Mar 2012.