Tax Allowances, Rates and Thresholds for 2012/13
Following the Chancellor of the Exchequer’s Autumn Statement, the Government has published next year’s tax allowances, rates and thresholds for income Tax and National Insurance Contributions and subscription limits for Individual Savings Accounts. Below is a brief summary for 2012/13 and details of further measures which will come into force either in 2012/13 or 2013/14.
The key points to note for 2012/13 are:
Personal Income Tax
• Personal allowance is to rise by £630 to £8,105 (as previously announced).
• The age-related allowances will rise by £560 for those aged 65-74 and by £570 for those aged 75 and over, to give figures of £10,500 and £10,660 respectively.
• The income threshold above which age-related allowance is tapered will be £25,400 (up from £24,000 in 2011/12).
• The income threshold at which the personal allowance begins to be withdrawn remains at £100,000. The allowance will be lost entirely where income exceeds £116,210.
• The higher rate income tax threshold will be reduced by £630 to £34,370 (from £35,000 in 2011/2012). This ensures that the starting point for higher rate tax is frozen in cash terms.
• The threshold for the additional (50%) rate of income tax stays at £150,000.
• The 10% starting rate band for savings income will be £2,710 (up from £2,560 in 2011/12).
• The married couples allowance (only available where at least one of the parties was aged 65 or over before 6 April 2000) will rise to £7,705 (from £7,295) and the minimum amount will be £2,960 (from £2,800).
• The blind person’s allowance will rise to £2,100 (from £1,980).
National Insurance Contributions (NICS)
• The lower earnings limit for Class 1 NICS will be £107.00 per week for 2012/13.
• The primary threshold will be £146.00 per week.
• The upper earnings limit for Class 1 NICS will remain at £817.00 per week.
• The main rate of employees’ Class 1 NICS (between the primary threshold and the upper earnings limit) will remain at 12% for 2012/2014, whilst the primary rate (above the upper earnings limit) will remain at 2%.
• The employer’s secondary threshold will be £144.00 per week and the employers’ rate will remain at 13.8%.
• Class 2 NICS rate will be £2.65 per week.
• The small earnings exception for Class 2 will be £5,595 per annum.
• Class 4 NICS will be due at 9% on annual profits between £7,605 and £42,475 and 2% in excess of £42,475.
• The rate of voluntary class 3 contributions for 2012/13 will rise to £13.25 per week.
Individual Savings Accounts (ISAs) and Child Trust Fund (CTFs)
• The annual subscription limit to ISAs for 2012/13 is confirmed as £11,280 of which up to £5,640 can be in cash.
• Junior ISAs were introduced on 1 November 2011 with an annual subscription limit of £3,600. This figure will continue to be the subscription limit for 2012/13 before increasing in line with the Consumer Price Index from 6th April 2013.
• As a result of the introduction of Junior ISAs and to ensure that holders of CTFs are not disadvantaged, the maximum contribution to a CTF was increased to £3,600 with effect from 1 November 2011 and this figure will be maintained for 2012/13.
Residence and Domicile
• For non-UK domiciled individuals who wish to use the remittance basis of taxation and who have been UK resident for 12 or more years, it is proposed to increase the £30,000 annual charge to £50,000 from 2012/13, as announced in the March 2011 budget.
• In June 2011, the Government published a consultation paper which proposed a statutory residence test which would come into force from 2012/13. Following the completion of the consultation process, the Government has decided to defer the implementation of the statutory residence test until 2013/14 in order to allow for further time for consultation on the detail of the proposed new rules.
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs)
• A new seed EIS will allow an individual to invest up to £100,000 in the 2012/13 tax year and secure 50% tax relief regardless of the rate of income tax that they actually pay. In addition, for 2012/13 only, if the investment is made from a taxable capital gain, then further relief of up to £28,000 would be available making the total relief £78,000. This relief appears to be absolute as opposed to a mere deferment.
• At the same time, the Government is concerned that some EIS and VCT schemes aim to reduce the risk for investors and therefore insufficient investment is reaching small high risk companies. It therefore intends to introduce a test to disqualify low-risk EIS and VCT schemes from tax relief.
Life Assurance Premium Relief (LAPR)
• In accordance with the recommendations contained in the Office of Tax Simplification Report, the Government intends to abolish LAPR with effect from 6 April 2015. LAPR has not been available on any policies effected after 13th March 1984, but has continued to be available at the rate of 12.5% on policies effected on or before that date, provided they have not subsequently been varied so as to increase the benefits or extend the term of the policy.
Capital Gains Tax (CGT)
• The rates of CGT remain at 18% for non, starting and basic rate taxpayers and at 28% for higher and additional rate taxpayers and most trusts.
• The annual exemption for 2012/13 will be frozen at £10,600 (individuals) and £5,300 (most trusts).
Inheritance Tax (IHT)
• As previously announced, the nil rate band will be frozen at its current figure of £325,000 for the tax year 2012/13.
• As announced in the March 2011 Budget, estates that include charitable legacies of at least 10% of the estate (after the deduction of any liabilities, reliefs and exemptions and after taking into account the available nil rate band) will benefit from a 36% rate of IHT compared with the main IHT rate of 40%. This change will apply to deaths on and after 6 April 2012.
• As previously announced, the main rate of corporation tax (26% for the financial year 2011) will reduce to 25% for 2012 and to 24% for the financial year 2013.
• The small profits rate for the financial year 2012 will be 20%.
• The Government will extend the small business rate relief holiday for a further six months from 1 October 2012.
The significant rise in the personal allowance form 2012/13 is designed to lift many people on low incomes out of the income tax ‘net’ and ease the burden on basic rate taxpayers. The focus remains on increasing the tax take from individuals with higher incomes in 2012/13. At the same time, the Government is increasing the tax incentives designed to encourage investment in start-up companies in a bid to stimulate the economy. Similarly, individuals are encouraged to leave larger legacies to charity by a reduced rate of IHT.
13th December 2011