Kirsten Tassell, a tax partner in the private client services practice at Deloitte in Cambridge, comments on the implications of the Autumn Statement 2013 for individuals.
Deloitte comments on measures affecting individuals in Autumn Statement 2013
Increased and transferable personal allowances
“It is confirmed the increased standard personal allowance of £10,000 (originally announced at Budget 2013) will take effect from 2014/15. This will mean a yearly saving of £112 for basic rate taxpayers rising to an additional £195 per annum for higher rate taxpayers given the confirmed higher rate threshold of £31,865.
“The intention to introduce the ability to transfer up to £1,000 of the personal allowance from one spouse to another was announced in September to come into force in 2015/16, and this was also confirmed in the Autumn Statement. It will benefit married couples and civil partners where neither is a higher rate taxpayer, and one has income less than the personal allowance. It will provide a saving of up to £200 for those affected; Government figures indicate up to four million couples will benefit at a total cost of £495m to the Exchequer in the first year.
“The transferable amount will increase in line with personal allowances. There is still no detail of exactly how the regime will work, in particular whether there will be a cliff edge effect at the higher rate threshold, or a gradual reduction of the transferable amount.
“The fact the higher rate threshold increase is being restricted to 1% for two years from 2014/15, rather than at CPI, will mean many more taxpayers will be drawn into the higher rate. The IFS predicts 17.2% of taxpayers will pay the higher rate in 2014/15 and this is likely to rise to 20% by 2016/17, or even a year earlier, depending on personal allowance changes post-election.”
National Insurance rates
“The 2014/15 rates have been announced. The upper earnings limit has slightly increased in line with the combined increased personal allowance and higher rate tax threshold which mean a 10% increase on earnings in the increased band. This will mean extra NICs of £41.50 per annum for those with earnings over £41,450.
“However the starting point has not risen in line with the increase in personal allowances. It has increased by £4 per week to £153 meaning the 12% charge kicks in at earnings over £7,956, rather than the £10,000 for income tax. The modest increase means a saving of £25 for those earning at least £7,956 per annum.
“Employers will welcome the abolition of employer’s National Insurance Contributions for those under the age of 21 earning less than £813 per week from 6 April 2015. However, this does not apply to the employees.”
Principal private residence exemption
“If a house has been a main residence at some time in the ownership period, the proportion of the gain relating to that period is exempt on sale. Whether or not the house is occupied in the final three years, the gain relating to that period is also exempt from CGT. This three year period is to be reduced to 18 months from 6 April 2014. The exemption is designed to give people who need to relocate a period in which to sell their house. It was originally one year and was increased from one year to three when the property market was slow some years ago. It is hoped that the slow housing market in some areas does not mean unforeseen tax charges in some cases, although we are told that some protected groups will be exempt from the change.”
Capital gains tax for non-residents
“As widely rumoured, the Autumn Statement contains proposals to tax non-residents on gains made on the sale of residential property. This follows the changes in the 2013 Finance Act introducing such a charge on non-resident companies disposing of UK residential property worth more than £2m. The charge will affect disposals of all UK residential property by non-resident individuals, and
non-resident corporates where the property is worth less than £2m and will apply from 6 April 2015. It is expected to raise £345m by 2018/19. The Statement referred to future gains being taxed, so it seems likely the gain will be based on growth in value from the 6 April 2015 start date, as was the case when the charge for companies was introduced. It is not clear how the charge will be enforced, and it is possible a withholding will be required by purchasers, in line with the position in the US. There will be numerous complexities to be considered, not least the interaction with already existing beneficiary charges in respect of trusts. Needless to say, the period of consultation is welcomed.”
Trust tax regime
“Following the consultation over the Summer months, the Autumn Statement confirms the introduction of a new simplification regime for charging IHT on trusts is being delayed to 2015, with another period of consultation being planned; the third on this subject. This is presumably to take account of adverse comment of the proposals on existing arrangements. However, welcome changes to simplify the filing and payment dates for IHT charges are being made, including an online service from 2015/16.”
Lifetime cap on ISA investment and Child Trust Funds
“The new subscription limits for ISAs and Child Trust Funds have been announced, giving an increase for 2014/15 to £11,880 for ISAs and £3,840 for Junior ISAs and Child Trust Funds (in line with the CPI increase). However, there is no action yet to allow Child Trust Funds to be transferred to Junior ISAs, following the Consultation during the summer. The consultation responses are still being considered.”
The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.