Budget 2013

1) Introduction
2) Personal Income Tax
3) Tax Credits and Benefits
4) National Insurance
5) Employees
6) Savings and Investment
7) Capital Gains Tax
8) Inheritance Tax
9) Corporation Tax
10) Business Tax
11) Value Added Tax
12) Stamp Duty Land Tax
13) Other Measures
14) Income Tax Rates and Allowances
15) National Insurance Contributions




Savings and Investment

Pension contributions (Table B)

It was announced in the Autumn Statement that the limits on tax-advantaged pension reliefs will be lowered further on 6 April 2014, after being reduced to £50,000 on 6 April 2011. The cap on annual contributions will fall again to £40,000. It has been confirmed that anyone who has paid less than the current limit in the three years before the change will be able to use the shortfall below £50,000 (not £40,000) to justify higher contributions in 2014/15.

The limit on the value of a tax-advantaged pension fund will fall from £1.5m to £1.25m for those taking benefits from 6 April 2014. Anyone with a larger fund taking benefits after that date will suffer an income tax charge on the excess at 55%. People adversely affected by this reduction – for example, already having pension rights valued at more than £1.25m but not wishing to take benefits before April 2014 – can apply for ‘protection’ which will lessen the impact of the change.

Pension benefits

Someone who takes their pension benefits may buy an annuity, or instead take ‘drawdown’ – keeping their own fund identifiable and receiving some or all of the income arising. The maximum amount of drawdown income has been fixed at 100% of the annuity that could have been purchased with the fund. This will now be increased to 120%, apparently to take effect from 26 March 2013. This should increase the flexibility available to people drawing their pension benefits.

Seed Enterprise Investment Scheme (SEIS)

SEIS is a generous relief that was introduced in 2012/13. A subscriber for shares in a small company in the first 2 years of its trade can enjoy a 50% income tax rebate on up to £100,000 invested. If capital gains of up to the same amount are realised in 2012/13 and invested in a SEIS company in 2012/13 or 2013/14, the gains will be exempted. These reliefs will become permanent provided a number of conditions are satisfied, but may be lost if the shares are sold or the company is liquidated within a short time. The combination of these reliefs mean that an investor can put £100,000 into a company at a cost of only £22,000.

The CGT exemption will now be extended to one-half of any gains realised in 2013/14 and invested in SEIS shares in 2013/14 or 2014/15. In effect, this will halve the CGT rate on such gains (making the potential cost £36,000 instead of £22,000 in the above example).

The original SEIS rules contained a serious trap: the company could not be acquired from a formation agent, but had to be incorporated by the people who intended to claim the relief. This pitfall will be removed from 6 April 2013, but not retrospectively.

Individual Savings Accounts (ISAs)

The annual limit on investment in tax-free ISAs increases to by £240 to £11,520 for 2013/14. This limit increases in line with the Consumer Prices Index each year, adjusted so that the result divides by 12 to allow for regular monthly contributions.