Now that the dust has settled on George Osborne’s announcements last month we have highlighted a few issues that are worthy of additional comment. These include: HMRC cap on certain tax reliefs, changes to age related tax allowances and Stamp Duty Land Tax changes. We have also included a short article that explains the benefit of a protective application for Tax Credits.
HMRC to cap certain tax reliefs
In an attempt to ensure that higher rate tax payers make a reasonable contribution to UK tax revenues new legislation is to be introduced from 6 April 2013 that limits access to certain, tax reliefs. Taxpayers will be denied relief(s) if the claim exceeds 25% of their income or £50,000, whichever is the greater.
This will not affect tax reliefs which are already capped such as Enterprise Investment Scheme and pension reliefs, but may affect “open-ended” reliefs such as interest relief on qualifying loans and gift aid relief. The Chancellor has said that he will consult to make sure that charities are not negatively affected by such a move.
Ironically, this may mean that tax planning opportunities available to 50% rate tax payers in 2012-13, may produce more tax savings than if applied, and capped, in 2013-14 when the top rate of tax is reduced to 45%.
Is your birthday after 5 April 1948?
If the answer is yes you will not qualify for the higher value personal allowances presently available to the over 65s and over 75s.
From 6 April 2013 Age Related Personal Allowances are being phased out. Here’s how the changes will work in practice:
HMRC to stamp on residential property transactions
How much Stamp Duty Land Tax will you pay when you buy residential property in the UK following the Budget?
Firstly the extension of the nil rate band to £250,000 for first time buyers ceased 24 March 2012.
The current Stamp Duty Land Tax (SDLT) rates are:
Residential property purchased outside disadvantaged areas
Zero charge – £0 to £125,000
1% charge – £125,001 to £250,000
3% charge – £250,001 to £500,000
4% charge – £500,001 to £1,000,000
5% charge – £1,000,001 to £2,000,000
7% charge ? Over £2,000,000
15% charge ? on properties over £2m held in a “corporate envelope” (see below)
The 7% and 15% charges were introduced in the Budget last month. The 7% charge applies to property purchases completed on or after 22 March 2012.
The 15% charge has been introduced to counter a tax device that aimed to avoid SDLT charges on high value residential property purchases. The scheme involved purchasing through offshore companies, so-called “corporate enveloping”, in certain circumstances the new rate also catches UK companies. The 15% charge will apply from 21 March 2012. In his Budget speech George Osborne made it clear he would close any variants of the scheme that were created in the future; if necessary the Government would introduce retrospective legislation.
Residential property purchased in a disadvantaged area
If a property you are purchasing is inside one of the 2,000 disadvantaged areas you may qualify for Disadvantaged Areas Relief. The only change to the SDLT rates listed above is to the nil rate band. If a property is located inside a disadvantaged area the nil rate band applies to property transactions up to £150,000. The 1% charge is adjusted accordingly, and applies to the band £150,001 to £250,000.
If you want to see if a property you are about to purchase qualifies for Disadvantaged Areas Relief you can use HMRC’s search tool at http://www.hmrc.gov.uk/so/dar/dar-search.htm
Tax Credits apply now to secure benefits
In order to qualify for a full year’s Tax Credit claim for 2012-13 your application needs to be made before 6 May 2012. This is because HMRC will not back date an application for more than one month. Prior to 6 April 2012 it was possible to backdate applications and notification of changes for three months.
Based on your past income levels you may be of the opinion that an application would produce no cash benefit. However, your circumstances may change. For example if you are self-employed you may suffer a downturn in trade that you cannot foresee or you may be able to claim for a significant investment in plant or equipment and reduce your taxable profits accordingly.
Applying before 5 May 2012 will secure your rights to Tax Credits for 2012-13. Even if the initial assessment reveals that no Tax Credit payments are due to you, should your circumstances change you can ask for the assessment to be re-evaluated.
Please call if you would like assistance in making a claim.
Tax Diary April /May 2012