Personal Allowances 2011/12 2012/13 2013/14 Personal (age under 65)* £7,475 £8,105 £9,205 Personal (age 65 to 74)** £9,940 £10,500 £10,500 Personal (age 75 and over) £10,090 £10,660 £10,660 *Income limit £100,000 £100,000 £100,000 **Income limit £24,000 £25,400 £25,400 ** For 2013/14 Age Allowance frozen until it becomes the same as the basic Personal Allowance
Other Personal Allowances 2011/12 2012/13 Married Couple’s Allowance* £7,295 £7,705 Married Couple’s Allowance** £2,800 £2,960 Blind Person’s Allowance £1,980 £2,100 2013/14 to be confirmed * Tax relief restricted to 10% and is only available where at least one of the parties is born before 6 April 1935 ** Minimum amount
Personal Tax Bands 2011/12 2012/132013/14 10%* £2,560 £2,710 TBC 20% £35,000 £34,370£32,245 40% / 32.5% £35,001-150,000 £34,371-150,000£32,246-150,000 50% / 42.5% £150,001> £150,001> N/A 45% / 37.5% N/A N/A £150,000> * Not available if non – savings income exceeds the 10% band limit.
Quirks that this will create Client with income of £43,875 (Salary £40,875, Bank interest £3,000) 2010/112011/122012/13 Tax £7,480 £7,560 £7,434 Payable as follows: Deducted at source PAYE £6,880 £6,680 £6,554 Bank interest £600 £600 £600 £7,480 £7,280 £7,154 Self Assessment – Higher rate liability - £280 £280 Total £7,480 £7,560 £7,434 For 2013/14 the 40% rate will start at income of £41,450.
Withdrawal of Personal Allowance 2011/12 2012/13 2013/14 Personal Allowance £7,475 £8,105 £9,205 Income Limit £100,000 £100,000 £100,000 Total loss of PA at: £114,950 £116,210 £118,740 Bryan from the Canine Partners Charity
Trust Tax Rates 2011/122012/132013/14 Income Tax Standard Rate Band £1,000 £1,000£1,000 Dividends 42.5% 42.5% 37.5% Other Income 50% 50% 45% Capital Gains Tax Annual exemption £5,300£5,300 TBC Gains before 23/06/2010 N/A N/A Gains on or after 23/06/2010 28% 28%
National Insurance – Employed 2010/112011/122012/13 Primary threshold pa £5,715 £7,225 £7,605 Upper earnings limit pa £43,875£42,475 £42,475 Employee’s main rate 11% 12% 12% Employee’s additional rate 1% 2% 2% Employer’s 12.8% 13.8% 13.8%
National Insurance – Self Employed 2010/11 2011/122012/13 Class 2 pw £2.40 £2.50 £2.65 Class 4 lower profits limit £5,715 £7,225 £7,605 Class 4 upper profits limit £43,875£42,475£42,475 Class 4 8% 9% 9% Class 4 additional rate 1% 2% 2%
Impact of Tax and NIC Changes Employee earning £100,000 salary, paid £20,000 bonus 2010/112011/122012/13 Income Tax£10,590£10,990£11,242 NIC £200 £400 £400 Total tax and NIC employee £10,790£11,390£11,642 Employer NIC £2,560 £2,760 £2,760 2013/14 - NIC not announced. 2013/14 - Income Tax would increase by £440 to £11,682
Impact of Tax and NIC Changes Salary2010/112011/122012/13 £60,000£18,289£18,591£18,419 £110,000£40,789£41,591£41,419 £180,000£73,079£74,980£75,061* *2013/13 NIC changes not announced Income Tax will fall by £1,500
From 6 April 2011 and no change for 2012/13 Marginal rate tax relief continues Annual contribution allowance restricted to £50,000 Unused allowance carries forward for 3 years Excess contribution charge BETTER THAN 2010/11! - STILL TIME FOR 2011/12 Pension Contributions Relief
Venture Capital Trusts 2011/12 2012/13 Maximum investment in quoted companies £200,000£200,000 Income Tax Relief 30% 30% Dividends on shares are exempt from Income Tax
Enterprise Investment Schemes 2011/12 2012/13 Maximum investment in unquoted companies £500,000 £1,000,000 Income Tax Relief 30% 30%
Enterprise Investment Scheme and Venture Capital Trust Examples Client with pension income of £200k per annum. Income Tax liability of approx £52,500 per annum. Commitment of approx £175k per annum to EIS and VCT investments. Over a 6 year period this means committing capital of just over £1m. Unless tax legislation changes or investments don’t perform as planned client will be able to benefit from a nominal tax liability each year.
Enterprise Investment Scheme and Venture Capital Trust Examples Client with Self Employed income of £20k per annum. Income Tax liability of approx £2,500 per annum. Commitment of approx £8k per annum to EIS and VCT investments. Over a 6 year period this means committing capital of £48k. Unless tax legislation changes or investments don’t perform as planned client will be able to benefit from a nominal tax liability each year.
Tax and NIC changes – is that the end...? Child Benefit for high earners Will continue to be paid in full Once one householder has income of £50k+ tax charge of 1% of the Benefit received per £100 of income over £50k Effect – taxpayers with income of more than £60k will have a tax charge equal to the Child Benefit Alternatively they can elect for the benefit not to be paid HMRC will contact people earning over £50k in Autumn of 2012 What about people who move from less than £50k to more than £50k?
Child Benefit changes for high earners – real impact example Client has salary of £50k 2 Children so £1,752 Child Benefit received Bonus paid of £5k Income Tax£2,000 NIC£100 Loss of Child Benefit £876 (£1,752 x 50%) Total Tax, NIC and loss of Benefit£2,976 Effective “Tax” rate59.52% Those with more than 2 Children will face an even higher effective tax rate HMRC estimate this will affect 1.2 million families Likely to be dealt with via the tax return or PAYE code adjustments.
Inheritance Tax Exempt Gifts Annual Gift £3,000* Individual allowance £250 Gifts in respect of marriage Parent £5,000 Party to the marriage £2,500 Any other person £1,000 * You can also use the previous year’s allowance if that has not been used Regular Gifts out of surplus income – only limited by income
Inheritance Tax 2010/11 2011/12 2012/13 Nil Rate Band £325,000 £325,000£325,000 Non Domiciled Spousal Exemption £55,000 £55,000 £55,000 Death Rate 40% 40% 40% Lifetime Rate 20% 20% 20%
Inheritance Tax Chargeable Estate£1,000,000£2,000,000 (After 6 April 2012) IHT due if no donation £400,000 £800,000 IHT due if donation > 10% of Estate £324,000 £648,000 Effective IHT relief for donation 76% 76% Reduction in beneficiaries’ inheritance £24,000 £48,000
Domicile & Residence Review of Non – Domiciled individuals living in the UK From 6 April 2011 and no change for 2012/13 Relaxation of Visa rules for entrepreneurs and investors coming to the UK From 6 April 2013 a statutory residence test will be introduced Ordinary residence will be abolished and overseas workday relief available
Remittance Basis Charge Non Domiciled in UK £30,000 Unremitted income/gains > £2,000 UK resident 7 of last 9 tax years No tax charge when non-domiciles remit for the purpose of commercial investment in UK business Changes from April 2012 Increase £30,000 tax charge to £50,000 for individuals who have been UK resident for 12 of the last 14 tax years
Pre Year end Income Tax planning Review split of income between spouses – is now the right time to form a Limited Company or Partnership – consider Child Benefit changes Look at your employment package and how income is taken from your company Maximise pension contributions – are you claiming all the relief due? Consider Enterprise Investment Scheme and Venture Capital Trust investments – they are not just for the wealthy Do you need to file a Tax Return? Review your Will – is IHT planning now appropriate? Plan ahead for next year and changes occurring on 6 April 2013.
Research & Development Tax Relief Background Introduced in 2000 for SMEs Overall advance in science or technology Government target: R&D 2.5% GDP by 2014 Qualifying revenue expenditure Staff costs Software, materials and consumable items Fuel, power and water Subcontracted expenditure
Research & Development Tax Relief From 1 April 2012 Tax deduction % of qualifying revenue expenditure: SMEs – 225% (200% before) Large – 130% (130% before) 100% ECAs for capital expenditure Surrender loss for 12.5% tax credit Relaxation of restrictions to relief £10,000 minimum spend limit abolished PAYE and NIC cap removed
Patently Good Profit attributable to patents taxed at 10% From April 2013 Applies to existing and new patents Includes purchased patents Reduced rate applies to Capital Gain on sale The first pair of training shoes ever made were invented and developed in 1892 by the Colchester Rubber Company of Colchester, Connecticut.
Pandora’s Box? Company must be legal owner Election required for rate to apply Not as good as some other EU countries Can be complicated calculations Only to patents granted by UK or EU Khalid Yafai (left) from Birmingham and Andrew Selby from Wales trade blows at their Olympic box-off at York Hall in London.
Capital Allowances 2011/12 2012/13 Annual Investment Allowance £100,000 £25,000 WDA 20% 18% Special Rate 10% 8% Hybrid rates to consider
Enhanced Capital Allowances Qualifying expenditure Energy-saving plant (Energy Technology List) Low emission cars – 95g/km from 1 April 2013 Zero emission goods vehicles Environmentally-beneficial plant (Water Technology List) Tax Credits Scheme extended for further 5 years from 1 April 2013 Surrender losses attributable to qualifying expenditure 19% tax credit capped at greater of: Total PAYE and NIC £250,000
Capital Allowances Company Cars changes Current – w.e.f 1 April 2012Proposed – w.e.f. 1 April 2013 Capital Capital Emissions Level Allowances Emissions LevelAllowances Low < 110g/km100% FYA’sLow < 95g/km100% FYA’s Medium 111 – 160g/km18% WDA’s Medium 96 – 130g/km18% WDA’s High > 160g/km8% WDA’sHigh > 130g/km 8% WDA’s 100% FYA’s on low emission cars to be extended to 31 March 2015
Company Cars Leasing a Car Proposed rules – w.e.f. 1 April 2013 Restriction will apply to high emission cars > 130g/km Currently > 160g/km 15% disallowance of lease costs will still apply
Is the company car tax efficient Low CO2 emissions Electric cars and vans / zero emissions 0% benefit in kind Up to 75g/km 5% < 99g/km10% 100-104g/km11% (Rise of 1% for every 5g/km thereafter)
Is the company car tax efficient Reva G-Wiz 0g/km Co2 Cost £15,000 228 miles per gallon Vauxhall Ampera 27gkm Co2 Cost £29,995 235 miles per gallon VW Polo 1.2 TDI 75PS Blue Motion 89gkm Co2 Cost £10,085 83 miles per gallon Citroen C1 109gkm Co2 Cost £8,000 61 miles per gallon
Car and Van Fuel Benefit Car 2011/12£18,800 x multiplier % 2012/13£20,200 x multiplier % 2013/14 onwardsMultiplier increased by 2% above inflation Van 2011/12Multiplier is £550 2012/13Multiplier frozen at £550 2013/14Increased by inflation
Employee Share Ownership To be reviewed / simplified Enterprise Management Incentive Scheme (EMIS) Limit for options up to £250k Growth subject to Capital Gains Tax Entrepreneur relief = 10% tax rate
Sowing the SEED (EIS) Commences 6 April 2012 Small, early stage company seeking investment Relief given to investor Similar rules to EIS Eligibility requirements must be met
Acorns… Company: Qualifying trade must be <2 years old Existence requirements UK resident Unquoted Gross assets up to £200k before investment
… to Oaks <25 Employees Company cannot be members of a partnership No EIS or VCT investment prior to SEIS Max SEIS < £150k cumulative Team GB Beijing 2008
It’s a gardeners world Investor: Potential Tax Relief of 78% for 2012/13 Max invest £100k Tax exemption on 2012/13 reinvested gains Current Employee No Director Yes <30% interest in company Future sale exempt from CGT Beijing 2008
Jack’s golden egg Jack, a higher rate tax payer, makes a gain in 2012/13 - £100k Invests the full amount into SEIS £ CGT saving (100k x 28%)28k SEIS IT Relief (100k x 50%)50k Net cost to Jack22k Jack Green GB Hurdles hopeful
Entrepreneurial Baby Dragon Young person’s entrepreneurs loan Similar basis to students loan Low interest rates Payback when earning one set amount
VAT Registration threshold£77k De-registration threshold£75k Rates unchanged Straightening of VAT treatment Listed building alterations Repairs to all buildings Self-storage
GAAR General Anti-Avoidance Rule Crack-down on tax avoidance schemes Enable HMRC quick reaction IR35 Simplification Denis Oswald (above), Chairman of the London 2012 International Olympic Governing Body and Colin Moynihan, British Olympics Association, enforce the rules.
GAAR – Toothless smile? Ambiguous? Is any planning outside scope? Increase in court cases? The many smiles of Michael Phelps, USA 8 Gold medals in Beijing 2008
Unlimited Tax Relief? Not from April 2013 Cap to apply, greater of £50k, or 25% of Income What is caught? First Figure Skating Event 1908 - Madge Syers first Women’s Olympic Figure Skating Champion before ice skating was moved to the ‘Winter’ Olympics in 1924
Cut out the red tape! Integration of Income Tax and NI Small businesses - cash basis Expenses for cars, motorcycles and home Disincorporation relief CONSULTATIONS
Tax Administration Tax transparency Real time information PAYE penalties reform Wider powers for criminal investigation Tax agents – dishonest conduct?
Andrew Edge Partner – Head of Financial Planning Department
ISA Allowances – From 6 April 2012 Annual allowance increased from £10,680 to £11,280 Up to £11,280 into an Investment ISA Or up to £5,640 into a Cash ISA with the balance up to £11,280 into an Investment ISA Cash ISA rates - 3%. Higher rates for longer term accounts You can switch Cash ISA to Investment ISA but not other way round! Tax incentives re growth & income Junior ISAs launched 1 November 2011 – up to £3,600 in each tax year for anyone under age 18. Cash ISAs also available for 16 & 17 year olds in addition!
Enterprise Investment Schemes What is an EIS? Government initiative - encourage investment in smaller companies 30% tax relief Tax free growth after 3 years Allowable investments - £10,000 to £1m (wef 06.04.2012) Carry back (1 year) option Inheritance tax-free after 2 years Seed Enterprise Investment Scheme (SEIS)
Venture Capital Trusts What is a VCT? Government initiative - encourage investment in smaller companies 30% tax relief available up to max £200k investment Tax-free dividends Helps to finance vital part of UK economy No IHT exemption
VCT INCOME TAX RELIEF Tax Advantaged Investment EIS MAX INVESTMENT MINIMUM TERM DIVIDENDS GROWTH CGT DEFERRAL IHT EXEMPTION (BPR) 30% £200,000 5 YEARS TAX EXEMPT NO 30% £1,000,000 3 YEARS TAXED TAX EXEMPT YES
EIS and ISA Combination £37,600 EIS £11,280 Tax Relief EIS accessible after three years tax free £37,600 EIS £11,280 Tax Relief EIS accessible after three years tax free ISAs fully accessible – no tax £11,280 = ISA 1 £11,280 = ISA 2 Result : 60% Increase In Value
Result : 90% Increase In Value £20,000 EIS £6,000 Tax Relief EIS accessible after three years tax free £6,000 Pension £1,500 BR Relief £1,500 HR Relief £20,000 EIS £6,000 Tax Relief £6,000 Pension £1,500 BR Relief £1,500 HR Relief EIS accessible after three years tax free Retirement Income Boosting
Restricting Pensions Tax Relief Maximum annual allowance restricted to £50,000 from 6 April 2011 Tax relief available at individual’s highest rate Employee taxed on excess payments Carry forward of un-used pension payment allowances – reintroduced 6 April 2011
Watch – Pension Input Periods Pension Input Period 2011/12 2012/13 6 January 2012 5 January 2013 £100,000 6 January 2012 £90,000 post 6 April 2012 5 April 2012
Pension Changes From 6 April 2012 No tax changes announced Lifetime allowance reduced from £1.8m to £1.5m Contacting out of the State Second Pension (S2P) - ceases with effect from 6 April 2012
National Employment Savings Trust (NEST) Phased implementation from 1April 2014 to 1 April 2017 dependent on number of employees Compulsory Pension funding for employers & employees Employers have to automatically enrol employees Employees have to opt out For earnings above £7,475 p.a. Budget for this additional cost
NEST – Compulsory Contributions Employee Pays **Employer Pays Before 1 October 20171% From 1 October 20173%2% From 1 October 20185%3% ** Less tax relief
Inheritance Tax From 6 April 2012 No changes to what we already know! Make full use of annual allowances available Consider inheritance tax efficient investments Our Inheritance Tax Solutions handbook – 13 case studies
Summary – Planning Ideas Maximise ISAs before 5 April 2012 – Cash to Investment ISA? Consider EIS/VCT for tax planning and ISA allowance and/or pension funding Maximise pension allowances before 5 April 2012 Consider carry forward allowances and review current Pension Input Periods to avoid any excess payment tax charges Cap on unlimited reliefs from 6 April 2013 – not for EIS/VCT/ pensions! 13 IHT solutions – ask for a copy of our IHT case study pack
Compliance slide The purpose of this presentation is to provide generic technical training. It should not be taken as recommendations or advice on specific products (or providers). It is based on Scrutton Bland Limited’s understanding of current law and Inland Revenue practice, which may be subject to future variation. Scrutton Bland Limited is authorised and regulated by the Financial Services Authority