Friday, March 23, 2012 | Posted by: Fiona Cullinan
Categories: Personal, Protecting your wealth | Tags: tax, tax avoidance, budget, GAAR, residence, personal allowance, Budget 2012, budget2012, non-doms, Craig Kemsley, pension tax relief, 50% tax
How will UK Budget 2012 affect high earners and entrepreneurs? Craig Kemsley, Head of London Private Client at Grant Thornton, gives a summary – watch the video or continue reading for a text roundup of the main points.
Some key points for individuals and entrepreneurs:
• 45p rate and dividend tax
The reduction in the 50p income tax rate to 45p from 6 April 2013 also impacts on the amount of tax paid on dividends. Currently, the highest rate of tax on dividends is 42.5% and this will reduce to 37.5% from 6 April 2013. It may be that private business owners and entrepreneurs choose to delay taking a dividend from their companies until the next tax year.
• Increased personal allowances
Personal allowances will increase both this tax year and next. The increases will largely be offset for higher rate taxpayers by a reduction in the basic rate limit from £35,000 to £34,370 this April and from £34,370 to £32,245 from April 2013.
• Where is your money going?
From 2014 we’ll all get more information on how much tax we’ve paid, the average rate of tax and also how that tax is applied to public service expenditure in the form of an annual statement– and, interestingly, it will also include information on how much interest we’re paying on the national debt.
• Relieved about pensions
Changes to pension tax relief did not materialise in this Budget – to encourage wealthy individuals to remain in the UK – so it’s situation normal as far as pension contributions are concerned. Those paying the top rate of tax can claim relief of up to 50% on pension contributions, reducing to 45% when the top rate changes.
• Tax rules for non UK domiciled individuals
It had been pre-announced that the statutory test of residence will be deferred until 2013 although, in his Budget speech, George Osborne committed to establishing the test and announced details about how he plans to encourage wealthy non-domiciled individuals (non-doms) to invest in UK businesses. (We’ll be covering a generous new tax relief for non-doms aimed at making the UK a more attractive place to invest here on the Bespoke blog shortly.)
• Help for small and medium-sized businesses
The Enterprise Finance Guarantee Scheme (EFGS) was extended – again – and also confirmation was received in the Budget about a National Loan Guarantee Scheme, which should have the impact of lowering the cost of finance for small and medium-sized businesses.
• EMI and entrepreneurs’ relief extended
The Enterprise Management Investment (EMI) scheme was also enhanced in this Budget by more than doubling the amount of shares that a taxpayer can hold in the scheme. It was also announced that the entrepreneurs’ relief rules would be reconsidered in terms of EMI shares.
• Cap on income tax reliefs
In much the same flavour as a tycoon tax, a new limit on all uncapped income tax reliefs is to be introduced for individuals. The cap will be set at 25 per cent of income or £50,000, whichever is greater. This is to stop higher earners using income tax reliefs excessively. The measures are not expected to extend to reliefs where caps already exist, such as Enterprise Investment Schemes, but will apply to charitable donations, for example.
A general anti-abuse rule (GAAR) was confirmed and should come into play sometime in 2013 but there will be a lot of consultation between now and then.