22nd March 2012

Budget 2012

Here is a summary of the measures introduced by George Osborne in the 2012 Budget. Read the full Budget Report here, or visit the HM Treasury Wesbite.

50p Income Tax rate cut to 45p

George Osborne confirmed that the 50p Income Tax rate on individuals earning more than £150,000, introduced in April 2010, would be cut to 45p from April 2013. The Chancellor criticised the Labour policy after he revealed it had raised only one third of the £3 billion it had been expected to generate.

Personal Allowances Raised by £1,100

Osborne’s plan to increase the basic Personal Allowance from £8,105 in 2012 to £9,205, as of April 2013, was the coalition’s flagship policy for this Budget. The longer term aim is for everyone to have a Personal Allowance of at least £10,000.

Freezing Age-Related Allowances will cost pensioners £1.2 billion

The Chancellor announced plans to phase out age-related tax allowances.

Age-related allowances will be frozen at 2012/13 levels of £10,500 for those born between 6 April 1938 and 5 April 1948, and £10,660 for those born before 6 April 1938 as of 6 April 2013.

The Government will introduce a £140-a-week state pension, which will not be subject to means testing.

Stamp Duty Land Tax

Stamp Duty Land Tax on residential property worth more than £2 million will jump to 7% from the current rate of 5% for homes valued at over £1 million. The Chancellor also imposed a 15% rate on residential properties valued over the £2 million limit, which were owned by companies, in a move to combat a common tax avoidance scheme.

Further action was threatened against individuals who continued to try to avoid Stamp Duty Land Tax.

Caps on Income Tax Reliefs

The Government will put a cap on individuals claiming income tax reliefs which could cause a major shake-up of tax planning for high-net-worth individuals. “Individuals who claim more than £50,000 of reliefs will face a cap set at 25% of their income,” said Osborne.

The cap will not apply to Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) or tax relief on pensions.

Corporation Tax cut by 1%

The Government will cut the main rate of Corporation Tax to 24% in April, with the intention of cutting it to 22% by 2014.

Osborne also proposed extending tax relief for the video game and TV production sectors, as well as simplifying the tax system for small firms with a turnover of up to £77,000.

New anti-avoidance rules agreed

The Government will introduce a general anti-avoidance rule after Osborne branded tax evasion and aggressive tax evasion ‘morally repugnant’. The Aaronson report, which recommended that the anti-avoidance rule should only apply to the most ‘outrageous’ cases of tax planning, will form the basis of proposals which will be incorporated into the Finance Bill 2013.

Tax clampdown on life policy and annuity allowance

HMRC plans to target the use of clusters of life policies and annuities with new measures unveiled in the Budget. “Cluster bonds” allow clients to access cash before the end of the bond’s term by redeeming segments so that the entire taxable gain is left with the final segment of the policy.

HMRC closes property-based IHT avoidance schemes

The Government plans to tackle individuals using offshore trusts and settled property to avoid Inheritance Tax. The planned measures will prevent UK domiciled individuals from acquiring interests in settled property via offshore trusts, with the purpose of reducing the value of their estate.

Government caps MIP contributions at £3,600

The Government plans to introduce a £3,600 annual limit on payments into qualifying savings policies, including Maximum Investment Plans (MIPs). Qualifying savings policies were a popular savings vehicle in the 1980s and have become more popular again following the introduction of the £50,000 limit on pension contributions.

Levy on non-domiciles boosted to £50,000

The annual levy on non-doms who live in the UK for 12 years will increase to £50,000, under Government plans. The increase from the £30,000 levy, introduced by Alistair Darling in 2008, will prove controversial after the number of non-doms registered with HMRC fell by 16% in the last two years.

Treasury to close employee pension loophole

Employers will be banned from making contributions to pension schemes belonging to employees’ family members, according to Budget documents. The new rules will be introduced in the Finance Bill 2013 in a move to tackle individuals exploiting the savings on tax and National Insurance from contributions

EISs and VCTs targeted for tax relief abuse

The Government will step up its campaign against Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) designed to exploit tax reliefs. The new ‘disqualifying purpose’ test will exclude companies set-up for the purpose of accessing tax relief or feed-in tariffs.

Child Tax Benefit curbed

Plans to restrict the availability of Child Benefit have been softened to avoid ‘cliff edges’ which would have punished high-earning single parents. The new rules will mean that Child Benefit will be reduced gradually when someone in a household earns £50,000 with the cut off for losing the entire benefit to be set at £60,000.

Bank levy increased

To discuss how these changes might affect your personal situation, please contact us on 0131 220 0000 or click here.

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