UK Budget 2013

27.03.13

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

The UK budget on 20th March contained no real surprises, as the measures delivered had been in the pipeline for some time. Here is a summary of some of the measur

The UK budget on 20th March contained no real surprises, as the measures delivered had been in the pipeline for some time.

Here is a summary of some of the measures that may interest expatriates.

No safe havens

The Government?s plans to combat offshore tax evasion by clamping down on those who conceal income, assets and gains overseas. New tax information exchange agreements have been signed with Jersey, Guernsey and the Isle of Man. The measures will open up access by HM Revenue & Customs to information about funds held in these offshore financial centres.

Those with hidden funds in these locations have until 2017 to come forward and bring their tax affairs up to date. This disclosure facility means less chance of prosecution and lower penalties. After 2017 penalties for non-compliance will become severe.

Tax rate changes

The personal allowance will be increased to ?9,440 from 6th April 2013 and rise to ?10,000 from 6th April 2014, a year earlier than expected.

The main rate of corporation tax is to be reduced by 1% to 23% from 1st April 2013, then to 21% a year later and 20% in April 2015.

Pensions

The single state pension, which will pay a flat rate of ?144 per week, will be effective a year earlier than originally planned. This new state pension will come into effect in April 2016.

From 6th April 2014 both the annual allowance and the lifetime allowance with respect to pension contributions will be reduced. The annual allowance will be reduced by ?10,000 from ?50,000 to ?40,000. The lifetime allowance will be reduced from ?1.5 million to ?1.25 million although the Government has confirmed that for those people whose pensions already stand at ?1.5 million or are expected to, there is a fixed protection scheme in place known as ?fixed protection 2014?. Individuals may apply for Fixed Protection 2014 as long as they cease to contribute to their pension after 6th April 2014 where the pension stands at over ?1.5 million. Applications must be submitted by 5th April 2014.

UK Inheritance Tax

The inheritance tax nil rate band will be frozen at the current value of ?325,000 until April 2018.

From 6th April this year non domiciled spouses may elect to be treated as UK domiciled for inheritance tax purposes, which will allow them to access the full spousal exemption. This can be backdated up to seven years. Furthermore, from 6th April, the transferrable amount between a UK domiciled individual and a non-domiciled spouse has increased from ?55,000 to ?325,000.

Anti-avoidance legislation will be also released in the Finance Bill 2013 that changes the way loans within an estate are treated.

The New Statutory Residence Test

The new statutory residence test is effective from the 6th April this year. It is a welcome addition to current tax legislation as it ensures certainty for taxpayers when it comes to deciding whether they are UK resident or not. This is an important issue as residence status affects the taxes you are liable to. Previously, the concept and definitions surrounding the term 'residence' were not defined within legislation and instead taxpayers relied on HMRC guidance to determine their residence position. Grey areas remained and taxpayers could inadvertently fall foul of the rules.

The new legislation lays out three sets of tests that clearly show the residence status of an individual depending on the facts of his or her particular case. The basic structure of the tests is as follows:

  • The Automatic Overseas Test – a four part test which if passed will show that an individual is not UK resident.
  • The Automatic Residence Test – a four part test which if passed will show that an individual is resident in the UK.
  • The sufficient Ties Test – where neither of the above two tests are passed, an individual must consider what 'ties' he has to the UK along with the amount of days actually spent in the UK during a tax year to decide whether he is UK resident.

Unwrapping high value residential property

This practice saw taxpayers using companies, partnerships or certain collective investment vehicles (?non-natural persons?) to purchase properties in order to escape stamp duty land tax charges.

Firstly, a retrospective measure effective from 21 March 2012 introduces a 15% rate of tax on acquisitions of residential dwellings costing more than ?2 million by certain non-natural persons.

Secondly, from 1st April 2013, an annual charge the Annual Tax on Enveloped Dwellings (ATED) of between ?15,000 and ?140,000 will be levied on residential property valued at over ?2 million owned by non-natural persons.

Thirdly, from 6th April 2013, capital gains tax will be extended to cover gains made by companies on the disposal of high value residential property.

UK taxation can still have an impact on British expatriates. Your tax planning needs to consider any UK implications as well as the local tax rules. You need to seek advice from a tax advisory firm like Blevins Franks which is in a position to advise on tax in both countries, how the two sets of rules interact, and how best to structure your assets to lower your tax liabilities for yourself and your heirs.

23rd March 2013

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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