Five Budget 2012 outcomes to be aware of in ordinary practice

 In Comment, Gill's Blog

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It is amazing that in this day and age the Budget speech the Chancellor makes has the build-up it does and then the inevitable analysis and comment follows. This year was no exception, with expressions of admiration for the reduction in the headline rate of income tax from 50% to 45% for wealthy individuals (but no mention of whether the trust rate will similarly reduce) and criticism of the additional potential tax burden on pensioners to achieve the increase in the personal income tax allowance for all. I guess your point of view will depend on your political position.

This blog aims to simply highlight five matters of interest to practitioners which are in the pipeline:

  1. 10% charity rate reduction for IHT – remember that the changes to the rate of IHT from 40% to 36% in certain circumstances comes into effect for deaths on or after 6 April 2012. The original proposals changed slightly in their effect when the draft Bill was issued in December 2011. There is not expected to be any major alteration to that draft Bill but you will need to check the Bill itself when issued and monitor its progress until Royal Assent. For a summary of the current application against a simple example listen to my webinar with LiPs which you can purchase at
  1. Welfare Reform Bill – this Bill abolishes Disability Living Allowance and makes other changes to the welfare provision for vulnerable people. Given we identify whether someone is a ‘disabled person’ for the purposes of the Disabled Person’s Interest trust for IHT if they are in receipt of Attendance Allowance or Disability Living Allowance, the ‘disabled person’ definition needs to be reviewed. A consultation is to get underway.
  1. Simplification of the calculations in the relevant property regime – the complex calculations to ascertain the periodic and exit charges need to be simplified. The tax charges are not to be abolished of course! Any suggestions as to how this might be achieved without an overall loss of tax to HMRC are welcome. A consultation with the professional bodies will be started later this year.
  1. Lifetime cap on the tax free amount which a UK domiciled spouse or civil partner can give to their non-domiciled spouse or civil partner – is at last to be reviewed. To my certain knowledge the cap has been fixed at £55,000 since at least 1975. The consultation will commence this summer with a view to incorporating the changes in the Finance Bill 2013. This sits snugly with the introduction of the Statutory Residence test which got the ‘green light’ to go forward. Ordinary residence will therefore be abolished from 6 April 2013 and the new test of statutory residence will then take effect.

The suggestion is to increase the cap to be the same as the prevailing Nil Rate Band. There might also be the ability for the non-domiciled individual to elect to be treated as UK domiciled for IHT purposes only, in order to get unlimited IHT free transfer from their spouse or civil partner.

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  1. Allowances – The personal allowance for income tax increases from £7,475 to £8,105 for 2012/13 and to £9,205 from April 2013. The annual exemption from CGT remains the same at £10,600 but increases in line with the consumer prices index from 2013/14 onwards. Similarly, the IHT nil rate band remains at £325,000 but will increase in line with the consumer prices index from 6 April 2015.

The growth in the consultative approach is welcomed despite it rather dominating the summer months. If you have any comments or queries on the above let me know and I shall make sure the relevant people get to hear your views.

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