1. UK BUDGET 2013 POINTS OF INTEREST By Malcolm Green MAAT TEP FInstSMM AAT Birmingham branch www.aatbirmingham.org.uk www.pinwm.co.uk

2. RTI PENSIONS IHT AND LONG TERM CARE SEIS

3. RTI penalties No late filing penalties will apply to RTI returns in either 2012/13 or 2013/14 –The existing penalty regime will apply if there are late returns at the year end –So the penalty will be £100 per 100 employees (or part thereof) per month late (or part month)

4. Late filing penalties from April 2014 The first month in a tax year which is filed late will not be subject to a penalty After this a penalty will apply which takes into account the number of employees and the number of defaults in the tax year The penalty is triggered if the full payment submission is not made: ‘on or before the time of payment of the employee’ But for employers with multiple paydays in a month –the legislation limits the number of penalties under this provision in respect of each tax month to one –Regulations will provide for the precise calculation of a penalty -Penalties will be applied quarterly

5. A fairer regime from next tax year The first late payment in a tax year continues to be regarded as “not a default” for the purposes of this legislation (as now) For the first, second and third defaults in respect of the tax year –the penalty is chargeable at the time of the default at a rate of 1% of the tax comprised in the default For the fourth, fifth and sixth defaults –2% of the amounts comprised in the default For the seventh, eighth and ninth defaults –3% of the amounts comprised in the default, and For the tenth and subsequent defaults a penalty is chargeable at the time of the default at a rate of 4% –This allows for the late payment penalties to be issued during the year

6. Employment taxes Employment allowance worth £2,000 available to all employers from April 2014 –To be delivered through RTI Replaces the failed Regional Employer’s NIC Holiday scheme –Less than 14,000 employers successfully claimed it Employment-related loans exemption to double to £10,000 from 6 April 2014 –Very helpful given ongoing rise in cost of season tickets –Will also benefit OMBs and reduce the burden of P11D completion

7. Pension changes from 6 April 2014 Annual allowance reduced from £50k to £40k Lifetime reduced from £1.5 million to £1.25 million -From April 2014/15 Incentive to make larger contributions in 2012/13 & 2013/14 Could be a problem for employees in final salary schemes Can claim “Fixed Protection 2014” Follow the auto-enrolment consultation carefully Currently the DWP proposes that Fixed Protection 2014 is excluded from the system

8. Pension input amount Money purchase scheme –Amount contributed Defined benefit scheme –More complicated –Based on the increase in the member’s benefits for the year

9. Example - Chris Chris is a teacher who is entitled to: pension of 1/80th final pay lump sum of 3/80th pensionable pay for each year of service Pensionable pay = pay received over last 12 months At the start of 2013/14: 24 years of service Pay is £45,000 (pensionable pay) He is promoted during the year: Earning £55,000 p.a. Pensionable pay for the 12 months to April 2014 is £51,600

10. Example - Chris Opening value Annual pension: 24/80 x £45,000 = 13,500 Flat factor x 16 = 216,000 Lump sum: 24 x 3/80 x £45,000 = 40,500 Value (216,500 + 40,500) = 256,500 Increase by CPI (say) x1.031 Opening value 264,452

11. Example - Chris Closing value Pension: 25/80 x £51,600 = 16,125 Flat factor x 16 = 258,000 Lump sum: 25 x 3/80 x £51,600 = 48,375 Closing value 306,375 Pension input (306,375 - 264,452) = £41,923 From April 2014 this would give rise to a tax charge on: £1,923 at 40% -Luckily Chris is Head of Maths!

12. Other pensions changes Drawdown cap to increase from 100% to 120% of the “basis amount” –Essentially the equivalent pension that would be available through a purchased annuity To apply to pension years commencing on or after 26 March 2013 Cap does not apply where other lifetime pension income exceeds £20,000 Pension payments to a scheme registered to employee’s spouse/family to be subject to income tax & NIC on both the employer and employee from 6 April 2013

13. Non-domiciled spouses & civil partners Limit of inter-spouse transfers to a non UK domiciled spouse increases to £325,000 from 6 April 2013 –Previously this was only £55,000 –Exemption will rise in line with the Nil Rate band No limit on transfers to a UK domiciled spouse Election now available to treat non-dom spouse as UK domiciled –Worldwide assets brought into IHT charge BUT… –No limit on inter-spouse exempt transfers –Advantageous where non-dom spouse has few foreign assets Elections to be made in writing –Provision to backdate up to 7 years (but not before 6 April 2013) –Once made it’s irrevocable whilst the individual is UK resident

14. Limit on IHT deduction for business owners Liabilities can be deducted in arriving at the net value of an estate on which IHT is charged –Even where the debt is used to acquire an assets eligible for BPR or APR Business loans secured on the taxpayer’s home currently reduce the value of the home and thus the chargeable estate BUT from Royal Assent (around 20 July 2013)the loan will reduce the value of the business which is already covered by BPR This will increase IHT liabilities significantly in some cases –Will also impact on IOU estate planning arrangements

15. Care in old age Implementation of the Dilnot Commission proposals Currently those with savings in excess of £23,000 are required to contribute to their costs of care –This limit is due to rise to £118,000 From 6 April 2016 there will be a cap of £72,000 on the amount of individual contribution to reasonable care costs –Funded by freezing of IHT Nil Rate Band This provides greater certainty in estate planning

16. SEIS Changes “Friends and Family” relief –But friends and family will often be associates! CGT exemption now reduced to just half of the reinvested gain –But extended to allow reinvestment in 2013/14 or 2014/15 Off-the-shelf companies now eligible –Previous exclusion was a drafting error Income tax relief is at 50% as long as there is tax capacity in year of investment or previous year

17. SEIS example – failure of business pre Budget 2013 Investment £100,000, tax relief £50,000 CGT exemption at 28%, £28,000 If business fails, claim loss under s131 –Conversion of capital loss into an income loss Loss £50,000 @ 45% = £22,500 Return to investor is £500, better than risk free! If a 40% taxpayer then net cost is only £2,000

18. SEIS example – failure of business post Budget 2013 Investment £100,000, tax relief £50,000 CGT exemption 50% of gain at 28%, £14,000 If business fails, claim loss under s131 –Conversion of capital loss into an income loss Loss £50,000 @ 45% = £22,500 Net cost to investor is NOW £13,500 If a 40% taxpayer then net cost is only £16,000