Tax hurdles for higher income earners
The Budget was both kind and cruel to high income earners. There is no change to tax relief for pension contributions, and the income tax additional rate will be reduced to 45% – 37.5% for dividends – after 5 April 2013.
Additional rate taxpayers should consider legitimately delaying income until next year. If you have your own company, then bonuses and dividends can be postponed, and this has the added benefit of later due dates. Delay cashing life policies, if these will result in chargeable gains. If you are self-employed, you may be able to bring forward revenue and capital expenditure that will reduce your assessable profits for 2012/13. And where possible make pension contributions and charitable donations this year rather than next.
From 6 April 2013, the proposal is that a cap will be applied to most reliefs that are currently unlimited. The cap will be the higher of £50,000 or 25% or a person’s income, and excess amounts will not qualify for a tax deduction. From the moment this was announced, charities expressed concern that a cap would discourage philanthropic donations, and the furore was such that the Government has just announced that charitable donations will not now be included – they can continue to be made without limit.
Carrying losses forwards or back against profits of the same trade will not be affected, but there is no detail yet regarding the treatment of other loss relief claims. Individuals who suffer losses on investments in unquoted trading companies will be affected, and it may be worth making negligible value claims this year to crystallise losses before the cap bites. The cap will also affect qualifying loan interest, and it will apply across all uncapped reliefs on a combined basis.
Another proposal for next year is the introduction of a general anti-abuse rule. The introduction of such a general rule in other countries has shown how difficult it is to formulate a provision that clarifies what it does and doesn’t cover and is practical to implement. The concern is that a general rule against tax avoidance could introduce enormous uncertainty into the tax system. The Budget also introduced several targeted anti-avoidance provisions with immediate effect, including a 15% stamp duty land tax rate where companies are used to acquire residential property valued at over £2 million.
If you are concerned that any of these changes will affect you, please contact us.
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