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The Budget 2013 – A Selection of Key Points for Consumers

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Hi everyone and welcome to my latest blog post. This presented a good opportunity to highlight some of the key announcements made by the Chancellor from the recent budget.

Although it was leaked well in advance that this would be a fiscally neutral budget, there was a sense of deja vu in the Chancellor’s fourth Budget, with many of his announcements already trailed in his autumn Statement in December. Mr Osborne did however produce some surprises despite the economic constraints. With the 2013 growth forecast halved to just 0.6%, the tax give-aways, such as they were, were often deferred and on the whole balanced by either extra revenue or reduced spending.

 

Personal allowances For 2013/14 the personal allowance will rise from £8,105 to £9,440

(as announced in December) and there will be a £2,360 reduction in the basic rate band from £34,370 to £32,010. The additional rate of tax falls from 50% (42.5% for dividends) to 45% (37.5% for dividends) partly to fund the proposed increase to the personal allowance in 2014/15 (see below).

For 2014/15 the personal allowance will rise by £560 to £10,000 and the basic rate band

will be cut by £145 to £31,865. As a result the higher rate threshold (personal allowance +

basic rate band) will rise by 1% to £41,865. The personal allowance will then be increased

in line with the Consumer Prices Index (CPI) from 2015/16.

 

Childcare scheme A new tax free childcare scheme will be introduced for children under

12 that will ultimately provide support worth 20% of childcare costs up to £6,000 per child

per year. The system will be phased in from autumn 2015, with all children under five eligible

from the first year of operation. Disabled children up to age 16 will also be eligible in line

with existing employer-supported childcare rules.

Tax free childcare will be available to families where the parents are working and are

not already receiving support through tax credits or Universal Credit. It will be available

if neither parent earns over £150,000 a year. Alongside the new scheme, the current

employer-supported childcare will be phased out for new applicants from autumn 2015.

 

State pension reforms The government has confirmed that the single-tier state pension

will be introduced from April 2016, even though in its January White paper the DWP said the

launch date would be “2017 at the earliest”. The State Second Pension (S2P) will close and

defined benefit contracting out (and the associated NIC rebates) will be abolished. The final

end of contracting out will produce a £5.5bn annual windfall for the Treasury, but ironically

60% of this will come from the ending of rebates given to public sector employers.

 

National insurance contributions (NICS) From April 2014 businesses and charities will

be entitled to a £2,000 employment allowance towards their employer’s Class 1 NIC bill,

which will be delivered as part of the normal payroll process through Real Time Information

(RTI). The benefit of this allowance will mainly be felt by very small employers, as £2,000

per employer per year is only enough to cover about £14,500 of NICable pay (£14,500 @

13.8% = £2,001).

The government will consult on using self-assessment to collect flat-rate Class 2 NICs from

self-employed people.

 

Corporation tax A single rate of corporation tax of 20% for companies will be introduced

from April 2015.

 

Stamp duty on Alternative Investment Market (AIM) and other shares Stamp duty

will be abolished from April 2014 on transactions involving shares in companies listed on

markets such as AIM and the ISDX Growth Market. The government is also consulting on

how these shares should be included within ISAs, with draft regulations due in summer. It

has already been confirmed that AIM shareholdings within ISAs will qualify for IHT business

property relief, subject to the normal rules.

 

Seed Enterprise Investment Scheme (SEIS) The one year capital gains tax (CGT)

reinvestment relief for SEIS companies introduced for 2012/13 has been extended, but

on a more limited basis. Investors who make capital gains in 2013/14 will be able to claim

capital gains tax (CGT) relief on 50% (previously 100%) of any gains they reinvest into SEIS

companies in either 2013/14 or 2014/15. This means the maximum effective tax relief will

be 64% (50% income tax + 28% x . CGT reinvestment relief). The government is not

expecting much take up it has costed the change at just £5m.

The qualifying conditions attached to the SEIS will be amended so that from 6 April 2013

an investment into a company established by corporate formation agents can qualify for the

scheme.

 

Mortgage scheme A package of measures to increase the supply of low-deposit mortgages

for credit-worthy households will be introduced from January 2014, including a government-backed

mortgage guarantee scheme.

 

VAT thresholds The VAT registration threshold will rise from £77,000 to £79,000 and the

deregistration threshold will increase from £75,000 to £77,000, both from 1 April 2013.

 

Tax avoidance schemes A General Anti-Abuse Rule (GAAR) will be introduced in Finance

Bill 2013. There will be consultations on proposals to target the promoters of tax avoidance

schemes, including ‘naming and shaming’ as well as a range of targeted disclosure

requirements and associated penalties. Retrospective legislation will address aggressive

SDLT avoidance schemes, particularly those exploiting ‘transfer of rights’ rules.

  • Suppliers bidding for government contracts will be required to declare they have complied

with specified tax obligations, allowing government departments to exclude non-compliant

bidders.

  • The tax provisions for unauthorised unit trusts will be amended to remove avoidance

opportunities while simplifying the rules and reducing administrative burdens for exempt

investors.

  • The IR35 provisions will be changed to equalise the tax and NIC treatment of office

holders. There will be a change to the IHT rules for the calculation of the value of an

estate where there is an outstanding debt. For example, this may depend on whether the

debt is repaid and its commerciality.

 

This is just an overview of some of the key points from the budget which I hope you found useful, a full list of budget measures can be found on the government website at www.hm-treasury.gov.uk/budget2013.htm.

 

WARNING – this blog is intended purely to be informative and should not be regarded as an inducement or recommendation to take any particular course of action. Every care has been taken to ensure accuracy of information printed but this cannot be guaranteed.

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About the Author:

“Eddie Papazian is Principal of EP Wealth Management Ltd with over 20 years experience in the financial services industry and a keen interest in all matters financial. Strong bonds have been forged with clients over this period with many referring family and friends on a regular basis. Eddie is a member of the Chartered Insurance Institute (CII), level 4 qualified to provide advice on; pension, investment, mortgage and protection products. Other interests include reading, tennis, walking and cycling.”

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