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Deloitte comments on the implications of Budget 2013 for individuals

21 March 2013

Personal Allowances
Patricia Mock, a tax director in the private client services practice at Deloitte, comments:
“The increase in the personal allowance to £10,000 fulfils the Coalition commitment and will come into force in 2014/15, a year earlier than hoped. The higher rate threshold has been reduced from £32,010 to £31,865.  This means a higher rate taxpayer will benefit by up to £195 from the combined change, more than a basic rate taxpayer who will be £112 better off. This contrasts with the increase to £9,440 due to come into force for 2013/14 where the changes are more beneficial for basic rate taxpayers who will save up to £267, whereas higher rate taxpayers will benefit by up to £62.

“People with income over £120,000 will not benefit at all from the personal allowance increase. In 2013/14 these taxpayers will see a tax increase of £472, with a further increase of £29 in April 2014.”

Tax-Free Childcare Scheme
As announced yesterday, the Chancellor confirmed his plans for a tax-free childcare scheme. It is designed to assist working families with childcare costs. The proposals allow up to £2,400 for a family with two children, providing both parents are in work and each earning less than £150,000 per year.

The payment will not be available for those claiming tax credits, or later, Universal Credit. However there is also a promise to increase the childcare support in this system, which currently is capped at 70% of maximum childcare costs for families with two or more children.

Neither of these increases will take effect until 2015 and there will be consultation on the details. The scheme for Employer Supported Childcare will remain for those who want to stay in this system but will not be available for new members.  

Patricia Mock says: “The overall effect will be three separate systems of childcare support, which will make it difficult for families to decide which system should apply to them. It will be particularly difficult to compare Employer Supported Childcare (which is provided on an individual basis) to the new scheme, which will be provided per family.”

Seed Investment Scheme Shares (SEIS)
There is an extension to the CGT exemption for investment in SEIS. Gains made in 2012/13 could be exempted if an investment was made in qualifying shares. However, the 100% exemption provided for gains made in 2012/13 will be reduced to 50% for 2013/14 gains.

Michael Hooke, a tax director in the private client services practice at Deloitte, comments: “Whilst this will no doubt provide a further encouragement to invest in the SEIS, restricting the relief to 50% will mean another layer complexity for investors.”

Inheritance Tax (IHT)
Patricia Mock comments:
“It has been confirmed the IHT nil rate band will be frozen at £325,000 until 2017-18. This is part of the package to fund a cap on care costs at £72,000 from April 2016. Whilst the measure will result in more estates falling within the 40% charge to inheritance tax in future, there should still only be a relatively small number which are affected by the tax.”

In addition, amendments to the proposals in Budget 2012 and later consultations affecting gifts from a UK-domiciled individual to a non UK domiciled spouse have been proposed.

Non-UK domiciled individuals who have a UK domiciled spouse or civil partner will be able to elect to be treated as domiciled in the UK for IHT purposes only (ie not for other taxes such as income tax or capital gains tax). This will enable assets to be transferred between spouses or civil partners free of IHT, but means that the worldwide estate of the spouse who makes the election will be within the scope of IHT. The time limit for the lifetime gift can now specify a start date of up to seven years before the date of the election, rather than needing to be made before the gift.  

Patricia Mock adds: “This is helpful as most lifetime gifts do not become chargeable to inheritance tax unless death occurs within seven years, and individuals are unlikely to become aware of the need to make an election until death occurs and lifetime gifts become chargeable.”

Cash basis for smaller businesses
As originally announced in the 2012 Budget, the option for small unincorporated businesses to use a cash basis for accounting will go ahead from 6 April 2013. However, some amendments to the proposals were announced today with a view to simplifying the arrangements.  

Patricia Mock says: “The original proposals were heavily criticised for their complexity and although some changes have been made, they are still far from being a simplification. In particular, it will not be possible to claim loss relief if the cash basis is used.  In our view, more consultation is needed before this basis is introduced.”  

Employee Shareholder Status
The previous proposals for ‘employee shareholder’ status are to go ahead from 1 September 2013. Those adopting this status will waive certain employee rights in exchange for receiving shares worth between £2,000 and £50,000 in their employing company. The employee will then be exempt from CGT on any sale of those shares in future. It has also been confirmed today that such employees will be deemed to have paid £2,000 for the shares, so that the first £2,000 in value of the shares received will be exempt from income tax and NIC. However, it will still be necessary to ensure that the total deemed and actual amount paid by the employee represents the market value of the shares to avoid any immediate or future income tax and NIC implications.

Michael Hooke comments: “This amendment deals with one of the main problems with the scheme and should encourage take up.”

Ends

Notes to editors
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities.

Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited

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