As well as the headline grabbing budget announcements on the reduction in the 50% tax rate and the phasing out of the increased personal allowance for those over 65, there were some other items we thought might be of interest and which have not been so widely reported.
Some of these are proposed future tax changes and some are changes which were announced some time ago.
The reduction in the rate of inheritance tax to 36% on estates of which at least 10% is left to charity will be included in the Finance Bill. The changes will apply to deaths after 6th April 2012. This presents a difficulty for those drafting wills as the best way of providing for the reduced rate to apply will be by using a formula in the will which refers to the relevant parts of the legislation. The Finance Bill is unlikely to become law until the summer.
- The reduction in the higher rate of tax to 45% applies to discretionary trusts as well as higher paid individuals. The trust income tax rate will now be 45% and the trust dividend income tax rate will be 37.5%. This will apply from 6th April 2013.
- If the inheritance tax nil rate band is no longer frozen, it will now increase in line with the consumer prices index rather than the retail prices index. At present the nil rate band is frozen at £325,000 until 5th April 2015.
Proposals for the future include:
- From 6th April 2013 there will be a limit on income tax relief claimed by individuals. The cap will apply to reliefs which are currently unlimited (such as gift aid relief and trading loss relief). The limit will be the greater of £50,000 or 25% of income. Some reliefs already have a statutory limit, such as the Enterprise Investment Scheme and pension contributions. Draft legislation for consultation will be published later in the year.
- The Government will consult on increasing the amount which can be left by a UK domiciled spouse or civil partner to their non UK domiciled spouse or civil partner. At present only £55,000 is exempt. If someone has made lifetime gifts to their spouse in excess of this limit within 7 years of death then on death tax may be payable on the lifetime gifts and the assets passing to the surviving spouse under the will or intestacy rules. The £55,000 limit dates back to the introduction of inheritance tax and has not been increased before. In addition non UK domiciled spouses or civil partners with UK domiciled spouses or civil partners will be given the option to be treated as domiciled in the UK for inheritance tax purposes so that they can take advantage of the unlimited spouse exemption available when both spouses are UK domiciled.
- The Government has accepted the recommendation of the Aaronson Report that a General Anti-Abuse Rule (GAAR) should be introduced to help crack down on artificial and abusive tax avoidance schemes.
For further information please contcat Emma Satterly by email@example.com