Finance Bill 2012 - Financial planning issues - Dec 11

The Government has recently published the Finance Bill 2012, which provides the draft legislation for a number of financial planning issues. The Bill will proceed through Parliament until mid-February and will come into effect on 6^th April 2012. The provisions may be subject to change, but for now, here’s our rundown of some of the key planning points:

1.     Pensions

Small personal pension pots worth less than £2,000 may be commuted for a lump sum in addition to the current triviality rules. This means someone who doesn’t qualify for triviality or has already used it, can commute one or two such pots once they’re 60 or over.

2.     Inheritance Tax – nil rate band

The nil rate band of IHT is £325,000 and this is frozen up to April 2015. Thereafter, the nil rate band is set to increase by the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI)….although the Government is keeping its options open by preserving an override.

3.     Inheritance Tax – reduced rates for charitable legacies

For deaths after 5^th April 2012, a reduced IHT rate of 36% will apply where more than 10% of the estate has been left to charity.

4.     Capital Gains Tax

While a freeze of the annual exempt amount (AEA) has already been announced, keeping it at £10,600 for 2012-13, thereafter it will rise by CPI, instead of RPI.

5.     Income Tax

For those under 65, the personal allowance will increase by £630 from 6^th April 2012 to £8,105. At the same time, the basic rate limit will reduce by £630 to £34,370. 

The effect of this is to keep the starting point for paying 40% (higher rate) tax the same. Of course, given the effect of inflation, this is effectively a tax rise.

6.     Reform of non-dom taxation

The relatively complex rules applying to individuals who are resident in the UK but not domiciled here for tax purposes are changing again in April 2012. The Remittance Basis tax charge is rising to £50,000 for those resident in the UK for 12 of the past 14 years, while the charge of £30,000 remains for those resident for 7 of the past 9 years.

7.     Removal of LAPR

Life Assurance Premium Relief is an old relief applying to policies taken out before 13^th March 1984. At present, you are still able to claim 12.5% income tax relief on the premiums of such policies, but after April 2015, this relief will be withdrawn.

And finally....

The Budget date for 2012 has been set for Wednesday 21^st March. Keep an eye open for Aspira’s review of the main Budget implications shortly afterwards.