Next month the personal allowance will increase by £1,335 to £9,440. It will increase to £10,000 next year. The basic rate ceiling is reducing again this year by £2,360 to £32,010 and next year by £145 to £31,865. The £150,000 ceiling for the top rate of tax is unchanged, but the rate from next month will be 45% rather than 50%.
The first £2,000 of shares gifted to employees under the new employee share scheme will be exempt from income tax and national insurance. This will be achieved by deeming the employee paid £2,000 for them. Any gains on up to £50,000 of employee shares will be free from capital gains tax.
HMRC has published a table which shows everyone with income between £7,500 and £100,000 will pay less tax and national insurance in the coming financial year than they have this year. This assumes their income is exactly the same in both years and takes no account of inflation. The tax saving for those in the £30,000 to £50,000 bracket, who are probably quite representative of financial adviser clients, will be just over £200 a year. Not a great deal, but perhaps they can be encouraged to put this saving aside to pay for some better financial planning advice rather than not really noticing it and frittering it away.
From 26th March 2013 the maximum capped pension drawdown will increase from 100% to 120% of an equivalent annuity.
As announced last year, the main rate of corporation tax will be 23%, with the small companies rate unchanged at 20%. The main rate will reduce to 21% next year, and from April 2015 all companies will simply pay a flat rate of 20%.
Employers will pay less national insurance from April 2014. The first £2,000 of national insurance which would otherwise have been payable will be offset by an “employment allowance”. The intention is that this will particularly encourage small businesses considering taking on their first employees, as they will probably not face a national insurance bill at all as a result of this measure.
The 100% first year allowance on low emission cars has now been extended to 31st March 2018, rather than 2015 as originally intended. Leased cars will, however, no longer qualify for the allowance. These changes, plus changes to the fuel benefit charge and to the emissions thresholds make it essential any businesses with company cars review their policy and make sure it still makes tax sense.
From April 2014 employers will be able to grant employees a beneficial loan of up to £10,000 without this being treated as a taxable benefit. The current limit is £5,000.
It has been announced that there is a planned capital gains tax relief on the disposal of controlling shareholdings where these are sold into an employee ownership structure. This could be very good news for business owners wishing to retire, depending on the very important details of the measure when it is introduced. The intention is to introduce this in the 2014 Finance Bill.
The government is continuing its relentless campaign to eradicate tax avoidance.
The intention is to make the General Anti-Abuse Rule part of the 2013 Finance Act. Little was said about this in the budget, however, and it is still quite unclear where the boundaries between acceptable tax planning and “abuse” will lie.
A table published by HMRC shows half of all income tax is paid by the top 5% of taxpayers. Any leakage of tax from this top 5% will therefore hurt the Treasury badly, and we should therefore expect increased attention on avoidance schemes typically used by them.
HMRC has announced it is looking to take stronger measures to discourage intermediaries promoting anti-avoidance schemes.
There were a number of anti-avoidance measures in the budget, including a retrospective change to counter Stamp Duty Land Tax avoidance. HMRC claims that the three major planks of their ongoing anti-avoidance campaign are action to prevent:
Disguised remuneration through offshore intermediaries, not already caught by the 2011 disguised remuneration rules;
2 The use of Limited Liability Partnerships to disguise employment relationships;
3 Manipulation of profits in partnerships (including LLPs) in order to secure tax advantages.
The attack on LLPs could be worrying for financial adviser practices planning to use them in response to a recent tribunal ruling that self-employed advisers should be considered employees for the purpose of employment rights. Although the HMRC announcement does not seem to be aimed at this particular situation, it could open the door to tribunals ruling that some members of a LLP must be treated as employees.
As a final warning note on tax avoidance, we should note that the National Audit Office has reported that HMRC wins around 85% of the avoidance cases it takes to court.
Long Term Care Costs & Inheritance Tax
As previously announced, the budget refers to a £72,000 “reasonable care cost” cap to be applied from April 2016.
This is intended to be funded from the freeze in the inheritance tax threshold. HMRC has also announced it is now using some very effective computer coding to identify likely understated estates – particularly where the executor is claiming the estate is below the threshold. We can therefore expect to see much greater Revenue attention to estate values so it can maximise the contribution of those estates to the cost of care.
The care cost cap does not help clients who need care before April 2016, so it is important our clients (especially the more elderly clients) are given proper advice on planning for the possibility of long term care. Those clients also need to look carefully at the actions they could take now to reduce or even eliminate the “voluntary” inheritance tax bill their children or grandchildren may face.