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Coutts look at Budget 2013

Dominic O’Connell, head of Tax, Trust & Estate Planning at Coutts, shares his views on the Budget.

Employment National Insurance Contributions

One of the few surprises in the 2013 Budget was the Chancellor’s announcement that from April 2014, there would be a new ‘Employment Allowance’ which would effectively reduce an employer’s national insurance liability by up to £2,000. This will be a welcome and encouraging relief to small businesses in particular, some of whom as a result may have no national insurance contributions liability at all.

Business Growth

The Seed Enterprise Investment Scheme (SEIS) was introduced in April 2012 as a variation of the Enterprise Investment Scheme but offering potentially more generous reliefs (such as income tax relief of 50%) but in more restricted circumstances. Not surprisingly the Government has decided to extend the availability of the capital gains tax relief for another year to 2013/14 although only up to half the amount will qualify for this CGT relief as compared to the full amount in 2012/13. Although this extension is welcome it will be interesting to see if these ‘sweeteners’ will really convince significant numbers of investors to commit capital to such inherently risky embryonic enterprises.

Income tax relief cap

The Budget appeared to confirm that the previously announced income tax relief cap will come into effect as planned from 6 April 2013. We remain concerned about the impact of the cap on entrepreneurship, in particular that the Government is effectively capping its own incentive mechanism when it is arguably needed most. For example, as the proposals currently stand tax deductions for loan interest and ‘early’ trade losses associated with certain, often embryonic, trading businesses could be severely restricted.

Housing Market

Apart from potentially growing the gilt market via the back door, you wonder whether the Help to Buy scheme will make a difference. After all, attempts to kick-start a flagging housing market with other schemes aimed at deposit-starved homebuyers have had mixed results. The outcome of the latest scheme may be equally predictable.

Inheritance Tax for non-UK domiciles

The Government has increased the IHT exempt amount that a UK domiciled individual can transfer to their non-UK domiciled spouse from £55,000 to £325,000 and in the future it will be linked to the level of the IHT nil rate band.

Alternatively from 6 April 2013, non-UK domiciles can make an election to be treated as UK domicile for IHT purposes so that there is no cap on the amount of transfers that can be made between spouses.

Although not expected to impact a significant number of couples, the increase in the spouse exemption is pleasing as is the additional flexibility that non-UK domiciles will have over whether to be treated as UK domicile for IHT purposes.

Anti-avoidance

The fine line between acceptable and unacceptable tax planning continues to dominate the headlines. The application of various historic Government ‘tax incentivised’ schemes have been coming under increased scrutiny and the amounts of corporation tax paid by some UK companies are continuing to receive much interest. Against this backdrop it was not surprising that today the Chancellor announced a further major crackdown on perceived abusive tax avoidance. In particular, corporation tax and employment taxes are key areas of focus as is offshore tax evasion which has today seen the publication of an offshore evasion strategy.

The Chancellor also re-confirmed that the General Anti-Abuse Rule is due to come into effect later in the year.

Corporation tax rates

In April 2015 the UK will have a 20% rate of Corporation Tax – apparently the lowest business tax of any major economy in the world. By merging the small company and main rates at 20p the complex marginal relief calculation will be abolished which should be welcomed by both business and tax practitioners (but maybe not by those setting tax exams!).

Statutory Residence

Two years on from the first announcement that a statutory residency test was going to be introduced, the legislation is due to come into effect from 6 April 2013 and we broadly welcome the increased clarity that this should bring. Although we do not expect this to cause any significant increase in the number of individuals moving to or from the UK, some individuals may have been waiting for the new rules to come into effect before finalising their plans.

Pensions

Pleasingly, but as we expected, no new fundamental changes to pensions were announced in the 2013 Budget. Prior to the Autumn Statement there was a great deal of speculation regarding the continued availability of tax relief on pension contributions when in fact the actual changes that were ultimately announced concerned the lifetime allowance and annual allowance levels and these changes are not due to come into force until April 2014.

This was posted in Bdaily's Members' News section by Coutts & Co .