Whilst subject to consultation until 10 February 2012, the Finance Bill 2012 provides draft legislation on many areas of finance that have been consulted on since the last budget. Some of the key areas that might affect our clients are detailed below. The following is by no means exhaustive  but should give a flavour of some of the changes to come:

Income Tax

For the under 65s, the tax free personal allowance will increase by £630 from £7,475 to £8,105 from 6 April 2012. At the same time the basic rate limit will reduce by £630 to £34,370.

The combination of these two measures means that the starting point for 40% tax stays at £42,475 in 2012/13.

Inheritance Tax

Increases in the IHT nil rate band will be in line with the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) from 6 April 2015. However, the nil rate band is frozen at £325,000 until the 2015/16 tax year. It has now been at £325,000 since 2009. 

Also, for deaths on or after 6 April 2012, Inheritance Tax will be charged at a reduced rate of 36% where at least 10% of that estate has been left to charity.

Pensions

There have been a number of complicated pension changes for high earners and for those with substantial pension savings. One area of simplification is to be welcomed at the other end of the spectrum. Where an individual is over 60 (but under 75) and their total funds from all pension schemes is under 1% (£18,000) of the Lifetime Allowance, currently £1.8m, the full pension can be drawn in one go rather than the pension holder being forced to buy a very small annuity. This particular “triviality” rule is unlikely to be of much relevance to our clients. Please note that the Lifetime Allowance is reducing to £1.5m in April 2012.

However, from 6 April 2012, individual personal pension plans worth up to £2,000 may be commuted for a lump sum, in addition to the normal triviality rules. Given the frequency with which people change jobs, it is not unusual to have the odd pension lying around that has just been left to one side because the administrative cost of transferring it would have outweighed the benefit of doing so. This new rule allows anyone  who wouldn’t qualify for triviality to commute up to two personal pensions, each worth £2,000 or less, providing they are aged  60 or above.

Capital Gains Tax

Increases to the CGT annual exempt amount will be linked to CPI instead of RPI from 2013-14 onwards. The CGT allowance will remain frozen at £10,600 for 2012/13.

Corporation Tax

The Finance Act 2011 confirmed a reduction in the main rate of Corporation Tax, to 26% from April 2011 and 25% from April 2012. An additional 1% reduction in the main rate to 24% from 1 April 2013 is included in the Finance Bill 2012. The small companies  rate remains at 20% for the year commencing 1 April 2012.

Removal of LAPR (Life Assurance Premium Relief)

Income tax relief of 12.5% is currently available on regular premiums paid into qualifying life insurance policies issued on or before 13 March 1984. Yes, some of these policies still exist and we have clients paying into them!  The relief will disappear after 6 April 2015.

Reform of non-domicile taxation

The Remittance Basis tax charge for non UK domiciled individuals is due to increase to £50,000 in 2012/13 for those resident in the UK for 12 of the previous 14 years.  The current charge of £30,000 remains for those resident for 7 out of the last 9 years.

ISAs

Whilst most of the above relates to tax increases, or allowance freezes (stealth tax increases once inflation is taken into account) it is worth remembering the ISA allowance is now increasing by an inflationary factor each year. The current allowance is £10,680 p.a. and this increases to £11,280 in April 2012. ISAs remain one of the best tools we all have to shelter savings and investments from tax.