Pensions
The Chancellor had already introduced major changes to pension tax relief in the March 2011 Budget. These are now included in Finance Act 2011. There are also important changes planned under the banner of Pensions Reform, namely auto-enrolment and NEST from 2012, which are now included in the Pensions Act 2011.
Given that so much has been changing in the pensions world recently it was not surprising that there were no major announcements around pensions in the Autumn Statement. However, there were two important announcements in the days leading up to the Autumn Statement that we would like to update you on:
Revised HMRC guidance on carry forward rules
HMRC has changed its guidance on how carry forward works for tax years 2008/2009, 2009/2010 and 2010/2011 – the ‘transitional years’.
This will impact all carry forward calculations involving these years.
What has changed?
Normally if someone has pension input of more than £50,000 in a given tax year, this uses up a shortfall from a previous year. This rule does NOT now apply to the transitional years ONLY.
What does this mean?
- Some people can pay more than previously thought.
- Some people can now use carry forward, who thought previously that they wouldn’t have any headroom.
- ‘Use it or Lose it’! Unused 2008/2009 annual allowance must be used before the 2011/2012 tax year/pension input period ends.
Change to auto-enrolment for small employers
Minister for Pensions Steve Webb has confirmed that the staging dates for auto-enrolment will be amended for small businesses. These are businesses with fewer than 50 employees. They will now be expected to auto-enrol employees from May 2015 instead of April 2014.
This decision was based on the difficult economic conditions small businesses are operating under and will give them more time to prepare for auto-enrolment.
State benefits and tax credits
State Pension Age (SPA)
- The SPA will rise from 66 to 67 from 2026, eight years earlier than originally planned.
- We had prior warning of such a change at the last Budget when the Government announced that they were considering proposals for future increases to the SPA to combat future increases in longevity.
Basic state pension (BSP)
The BSP will be increased in line with the ‘triple lock’ guarantee.
- It will be increased by £5.30 to £107.45 per week (£5,587.40 per annum) for a single pensioner.
- It will be increased by £8.50 to £171.85 per week (£8,936.20 per annum) for pensioner couples.
Pension credit
The minimum income guarantee within pension credit will be increased by 3.9% to:
- £142.70 per week (£7,420.40 per annum) for a single pensioner.
- £217.90 per week (£11,330.80 per annum) for pensioner couples.
Child tax credit (CTC)
The child and disability elements of CTC will increase in line with CPI (5.2%) in 2012/2013. The planned £110 above inflation increase will no longer go ahead. Therefore, the child element will rise by £135.
Working tax credit (WTC)
- The disability elements of WTC will also increase in line with CPI in 2012/2013. However, the couple and lone parent elements will be frozen.
- As previously announced, from April 2012 eligibility for WTC will be changed. Couples will need to work 24 hours between them with at least one working 16 hours. If only one works, it must be for a minimum of 24 hours. Currently, just one individual in the couple must be working at least 16 hours.
National minimum wage (NMW)
From 1 October 2011:
- £6.08 an hour – main rate for workers aged 21 and over (increased from £5.93 an hour).
- £2.60 an hour – apprentice rate for apprentices under 19 or 19+ and in the first year of their apprenticeship (increased from £2.50 an hour).
- £3.68 an hour – workers aged 16 to 17 and above school leaving age (increased from £3.64 an hour).
- £4.98 an hour – workers aged 18 to 20 (increased from £4.92 an hour).
Income tax and national insurance
As previously announced, from April 2012 there will be a further substantial increase in the personal allowance. From April 2012 the personal allowance will increase to £8,105. There will also be a corresponding decrease to the basic rate limit, reducing from the 2011/2012 level of £35,000 to £34,370 for 2012/2013. The higher rate threshold remains at £42,475. The increases mean that basic rate taxpayers who remain within the reduced basic rate band will be £126 better off in 2012/2013 in cash terms.
Capital gains tax
The capital gains tax exemption will be frozen for 2012/2013 at £10,600.
Tax efficient investments
ISAs
As previously announced the annual ISA subscription limit will increase in line with CPI to £11,280 (£5,640 for cash ISAs) for 2012/2013.
Junior ISAs
A reminder that Junior ISAs are now available. These offer a tax-free savings option for children. Up to £3,600 may be invested and this can be spread between cash and stocks and shares in any proportion.
Seed
The Government will launch a new tax advantaged investment in April 2012, the Seed Enterprise Investment Scheme (SEIS). This aims to attract investment into new start up companies by offering generous tax incentives. The scheme will offer 50% income tax relief for individuals investing in qualifying companies. It also offers capital gains tax benefits. A capital gains tax exemption will be available for gains on assets disposed of and reinvested through SEIS in the 2012/2013 tax year. The annual investment limit for individuals will be £100,000 with a cumulative investment limit for companies of £150,000.
Venture capital trusts (VCTs)
The government plans to remove the £1 million investment limit per company for VCTs.
Inheritance tax
No significant announcements were made on inheritance tax. This will come as a relief to some as there was much speculation about further restrictions to business property relief being introduced. However, previously the Office of Tax Simplification recommended a full review of inheritance tax and so we could see major changes in the medium term. In the meantime the good news is that all our trust plans remain available providing an opportunity for your clients to consider their estate planning needs.
As a reminder the nil rate band is frozen at £325,000 for tax years up to and including 2014/2015, after which the Consumer Prices Index (CPI) will be used as the default indexation assumption.
Corporation tax
The Government reminded us of its previous planned cuts to corporation tax
- A 1% cut to the main rate of corporation tax to 25% from April 2012.
- Successive reductions of 1% each year to a rate of 23% by 1 April 2014.
- No announcements on the smaller profits rate which is currently 20%.
This information is based on announcements made in the November 2011 Autumn Statement which may change before becoming law.
This information has very kindly been provided by Scottish Widows.
