For tax year 2012/13, legislation in the Finance Bill 2012 will increase the personal allowance for those aged under 65 to £8,105 and reduce the basic rate limit to £34,370.

The reduction to the basic rate limit means the higher rate threshold (the sum of the personal allowance and basic rate limit) is not affected by this announcement.

For the tax year 2011/12:

• the personal allowance for those aged under 65 will be £7,475; and
• the basic rate limit will be £35,000.

For tax year 2012/13, all other income tax personal allowances and limits that are subject to indexation will be increased in line with an unknown Index!  The HM Treasury Budget Document says on page 35 it will increase in line with CPI, but the HMRC Budget Document says RPI! No doubt clarification will follow in due course.

The Government has reviewed how CPI can be used for the indexation of taxes and duties while protecting revenues. From 6 April 2012:

• The Capital Gains Tax annual exempt amount (£10,600 for 2011/12 with only 50% available for most trustees) will be increased by the percentage increase in CPI over the year to the previous September (rounded up to the nearest £100).
• The ISA subscription limit (£10,680 of which £5,340 can be invested in a cash ISA in 2011/12) will increase in line with the percentage increase in CPI over the year to the previous September.
• The default indexation assumption for increases in direct taxes will be CPI.
• National Insurance (NI) thresholds for individuals will be increased in line with CPI.

However, for the duration of this Parliament the Government has announced that annual increases to employer National Insurance thresholds, age related allowances and other thresholds for older people will rise by the equivalent of RPI.

The lifetime limit on gains qualifying for Capital Gains Tax (CGT) Entrepreneurs' Relief is increased from £5 million to £10 million for disposals on or after 6 April 2011. Qualifying gains are liable to CGT at 10%. The lifetime limit is applied to the aggregate of gains that benefit from Entrepreneurs’ Relief, regardless of the year in which the disposal took place. There are no other changes to the rules or conditions relating to Entrepreneurs' Relief.

For trustees, the £10 million limit is that of the beneficiary of the settlement who meets the conditions for the trustees to claim the relief.

Any gains in excess of the lifetime limit are liable to CGT at the same rates as other chargeable gains (18% and 28%).

The rate of income tax relief given under EIS will increase from 20% to 30% of the amount subscribed for shares issued on or after 6 April 2011.

Investment limits will also be increased for shares in investee companies that are issued on or after 6 April 2012.

Changes include:

• The threshold for the maximum size of qualifying company for both EIS and VCT will increase from fewer than 50 to fewer than 250 employees.
• The qualifying company threshold will also increase for both schemes from no more than £7 million of gross assets immediately before the share issue to no more than £15 million before investment.
• The maximum annual amount that an individual company can raise under both EIS and VCT will increase from £2 million to £10 million.
• The annual amount that an individual can invest under the EIS will be increased from £500,000 to £1million.

The IHT nil-rate band is frozen until April 2015. In addition the Government have announced that where death occurs after 5 April 2012 and more than 10% of the deceased’s net estate is gifted to charity (after deducting any IHT exemptions, reliefs and the nil-rate band) a reduced rate of IHT of 36% will apply (e.g. a 10% reduction).

The Government confirmed that they will be consulting in June on the introduction of a statutory definition of residence to remove the current uncertainty and complication.

The Government will introduce the following reforms:

• Removing the tax charge when non-domiciles remit income or capital gains to the UK for the purpose of commercial investment in UK businesses.
• Simplifying some aspects of the current tax rules for non-domiciles to remove undue administrative burdens.
• Increasing the existing £30,000 annual charge to £50,000 for non-domiciles who have been UK resident for 12 or more years and who wish to retain access to the remittance basis. The £30,000 charge will be retained for those who have been resident for at least seven of the past nine years and fewer than 12 years.

There will be a consultation paper issued in June to determine the detail of this measure. However, the intention is to implement these reforms from April 2012.

A new income tax charge will apply to third party arrangements used by employers where they provide what is, in substance, reward to employees. The charge will be based on the full benefit of a sum of money paid or assets provided.

This charge will apply where a third party provides an employee with reward, recognition or a loan in connection with the employee’s employment. Third party arrangements that are not tax-avoidance will be excluded from the effect of this measure, in as far as this is possible without creating additional avoidance risks.

Third party intermediary arrangements are also used in addition to, or instead of, registered pensions to remunerate individuals above the annual and lifetime allowances, and the legislation applies equally to these vehicles.

The new income tax charge will be based on the full amount provided of:

• a sum of money made available; or
• on the higher of the cost or market value where an asset is used to deliver the reward or recognition, for example where the asset in question is transferred or otherwise made available for an employee’s use and benefit as if the employee owned the asset.

The amount concerned will count as a payment of employment income and the employer will be required to account for PAYE accordingly.

Also:

• The June Budget 2010 announced that legislation would be introduced from April 2011 to tackle arrangements using trusts and other vehicles to reward employees that seek to avoid, defer or reduce tax liabilities.
• The Government also confirmed that the scope of the legislation would include Employer Financed Retirement Benefit Schemes (EFRBS), in order to protect revenues and to be in keeping with the restriction of pensions tax relief through the reduced annual and lifetime allowances for tax-privileged pension saving announced on 14 October 2010.
• The annual allowance will be reduced to £50,000 from April 2011 and the lifetime allowance will be reduced to £1.5 million from April 2012.
• There were concerns that the legislation was broad and that arrangements which were outside the scope of the policy intention were inadvertently caught. The Government has therefore amended the draft legislation to limit impacts on employers and individuals where it is possible to identify arrangements that cannot be used for avoidance purposes. This includes, in as far as this is possible without creating additional avoidance risks, the protection of rewards provided by group companies, share incentive arrangements and genuine deferred remuneration arrangements. In addition the Government intends to protect investment income and gains, and to exclude existing pension savings.

The legislation will come into effect from 6 April 2011 and applies to rewards which are earmarked for an individual employee or otherwise made available on and after that date.

In addition, anti-forestalling provisions apply to the payment of sums (including loans) and the provision of readily convertible assets for the purposes of securing the payment of sums (including loans) where the sum is paid or the asset is provided between 9 December 2010 and
5 April 2011 where, if paid or provided on or after 6 April 2011, they would be caught by the legislation.

Regulations will be brought forward shortly to apply National Insurance Contributions to amounts chargeable to tax under the above measure.

Update as at November 2011

HMRC has published technical guidance on the Finance Act 2011 rules on employment income provided through third parties as part of the Employment Income Manual. This includes guidance on non-registered pension arrangements such as employer financed retirement benefit schemes (EFRBS).

http://www.hmrc.gov.uk/manuals/eimanual/eim45000.htm

The DOTAS regime keeps HMRC up to date with different types of tax avoidance schemes that are currently in use. This gives HMRC the opportunity to review and if necessary, amend legislation to block any scheme which the Government considers aggressive and unfair. The Government will issue a Consultation Document in May 2011 where it will propose to extend the list of possible tax avoidance schemes.  

Additionally, Regulations come into effect on 6 April 2011 which will bring IHT into the scope of DOTAS where it applies to transfers of property into trust. This means that ‘all new and innovative IHT avoidance schemes involving transfers into trust must be disclosed’.

This measure will ensure there are no adverse UK tax consequences when a foreign UCITS fund happens to have a fund manager resident in the UK. It arises from the HM Treasury consultation on the transposition of UCITS IV which closed on 21 March 2011 and will have effect on and after the date that the Finance Bill 2011 receives Royal Assent.

Legislation will also be passed in the Finance Bill 2012 to establish a tax transparent fund vehicle.  This will support regulatory changes under the UCITS IV provisions; the Government will be consulting on this new vehicle in June 2011.

As announced on 28 February 2010, the Government is consulting on amendments to certain elements of the offshore funds regime.

All UK resident children aged under the age of 18 who do not have a Child Trust Fund (CTF) account will be eligible for a Junior ISA.

Draft legislation, to be published on 31 March 2011 alongside the Finance Bill 2011, will set out proposed account features for Junior ISAs. This draft legislation will be subject to further development and discussion with interested stakeholders.

Legislation will be introduced in Finance Bill 2011 to reduce the corporation tax (CT) main rate by an additional one per cent on top of the four annual reductions of 1% announced in the June 2010 Budget.

The main CT rate for the Financial Year beginning 6 April 2011 will drop by 2% to 26%.

There is no change to the small business rate, so the beneficiaries of this change will be companies with profits above £300,000.

The Finance Bill 2011 will extend the bank levy (the levy).

The purpose of the levy is to ensure that the banking sector makes a fair contribution, reflecting the risks they pose to the financial system and the wider economy.

This change will increase the revenue from the levy in 2011 by £800 million to £2.5 billion.

The Government will abolish the fuel duty escalator and replace it with a fair fuel stabiliser and the main fuel duty rate will be cut by 1p per litre from 18:00 on 23 March 2011. The Treasury have estimated that a ‘typical’ Ford Focus driver will be £56 better off in 2011/12 as a result of the measures announced in today’s Budget!

Legislation is introduced in the Finance Bill 2011 to increase the rates of duty on all tobacco products imported into, or manufactured in, the UK. These measures will add:

• 33 pence to a packet of premium cigarettes.
• 50 pence to a packet of economy cigarettes.

Legislation will be introduced in Finance Bill 2011 to provide for a new duty on beer exceeding 7.5% abv (alcohol by volume) that is produced in or imported into the UK.

The impact of this change on retail prices is equivalent to 25 pence on a 500ml can of beer at 9% abv.