November was a busy month with the Chancellor's Autumn Statement combined with a number of Government announcements on taxes and pensions. In our view, these are the important points that will have a direct impact on our clients.
Pension Contributions: HMRC has changed its guidance on how carry forward works for tax years 2008/2009, 2009/2010 and 2010/2011 - the ‘transitional years'. Some people can now use carry forward, who thought previously that they would not have any headroom.
Personal Tax: As previously announced, from April 2012 there will be a further substantial increase in the personal allowance to £8,105. There will also be a corresponding decrease to the basic rate limit, reducing from the 2011/2012 level of £35,000 to £34,370 for 2012/2013. The higher rate threshold remains at £42,475.
The increases mean that basic rate taxpayers who remain within the reduced basic rate band will be £126 better off in 2012/2013 in cash terms. It is possible to make plans to remain within the basic rate band through making pension contributions or by setting up a salary sacrifice arrangement.
State Pensions: The State Pension Age will rise from 66 to 67 by 2026 rather than 2034 as originally planned. When planning for retirement we all need to decide whether we want to work longer or to plan more effectively to fund the pension shortfall between ages 65 and 67.
Inheritance Tax: The Nil Rate Band for Inheritance Tax remains frozen at £325,000 until 2014/2015 (after which it will rise in line with the increase in CPI). If personal assets are rising in value faster than the increase in the Nil Rate Band, more estates will be liable to Inheritance Tax. For high value estates relying on the Nil Rate Band, further planning may have to be considered, for example using Trust arrangements.
ISAs: The main ISA limits have been increased to £11,280 for 2012/2013 and investors now have the option of saving for their children's future using Junior ISAs.
Capital Gains Tax (CGT): The exemption has been frozen at £10,600. CGT planning, such as ‘Bed and ISA' is a prominent feature of our investment planning and effective use of the exemption each year is essential if it is not being increased in future.
Corporation Tax: The Government reminded us of its previous planned cuts to corporation tax: a 1% cut to the main rate of corporation tax to 25% from April 2012, followed by further reductions of 1% each year to a rate of 23% by 1 April 2014. The ‘Smaller Companies' rate (for profits below £300,000) is unchanged at 20%.
Limited Companies have the ability to defer when corporation tax is paid, and reducing corporation tax rates can make the ability to defer corporation tax until a future date even more attractive. In our view, most companies would benefit from a review of their profit extraction strategies.
To discuss any issues that may affect your directly, contact us on 01244 347 583