Budget predictions 2012
The Chancellor is facing a fine balancing act this year, looking to boost growth whilst keeping a tight rein on spending.
Now that most proposed tax and spending changes are announced in the Autumn Statement, there are usually only a handful of surprises when it comes round to Budget Day itself. Here are some of the possibilities:
- Real Estate Investment Trusts (REITs) – removal of barriers to entry for investors, particularly for the residential sector.
- Controlled Foreign Companies (CFCs) – refocusing of the regime on a more territorial basis so the only profits ‘artificially diverted’ from the UK are targeted.
- Patent Box – a new tax incentive (tax rate 10%) to promote the development and exploitation of patents in the UK by high-tech companies
- Research & Development tax credits – further enhancements including: 225% relief for qualifying expenditure by SMEs, rate of payable credit for SMEs reduced to 11%, removal of PAYE/NIC cap for payable credits, a credit against the corporation tax liability for larger companies.
- Feed in Tariffs (FIT) and Renewable Heat Incentive (RHI) – fixing the rate of capital allowances on plant and machinery that could qualify for payment under these schemes.
- Capital allowances on fixtures – requirement that property businesses must pool their expenditure on qualifying fixtures within a specified period of acquiring the building to avoid allowances being given more than once on the original cost of a fixture.
- Venture capital schemes – introduction of Seed Enterprise Investment Scheme to encourage investment into early stage companies, refocusing of relief, in particular, to disqualify the use of invested funds to acquire shares in another company.
- Non-UK domiciliaries – increase of annual charge from £30,000 to £50,000 to claim the benefit of the remittance basis where claimant has been UK resident for 12 or more of the prior 14 years and enabling non domiciliaries to remit funds tax free for the purpose of commercial investment in business
- Registered pension schemes – removal of unintended tax relief that can arise where asset backed contributions are made to defined benefit schemes so that relief reflects the value received by the scheme
A reduction in pensions tax relief?
IFAs annually cry wolf about imminent clamp downs on higher rate tax relief for pension contributions. Currently taxpayers can get full tax relief on pension contributions of up to £50,000 per tax year. The Liberal Democrats have sought to reduce the relief to basic rate (20%) only. A reduction of this annual allowance to £40,000 or £30,000 would be less unpopular.
Still no married couple’s allowance?
It now seems highly unlikely that the 21 March Budget will see the introduction of a married couple’s allowance.
A mansion tax?
Both Nick Clegg and Vince Cable favour a ‘mansion tax’. The proposed levy would see home-owners hit with an annual charge of 1% on a property’s value above a £2 million threshold. Rather than introduce a new tax, a simpler solution might be to raise the rate of Stamp Duty Land Tax (SDLT) for transfers of properties valued at £2 million or over. This would fit neatly with recent moves to counter SDLT avoidance.
Some easing on Child Benefit cuts?
The current proposals to remove all entitlement to Child Benefit as soon as a parent’s income passes the 40% threshold will cause a ‘cliff-edge’ where the spendable income of parents just into the 40% tax band will be significantly lower than those with income just below the threshold. This will not only be very unpopular, but also very unfair. Possibly, we shall see some smoothing of the cliff-edge effect.
More tax on private equity ‘carried interests’?
There is worldwide pressure to remove the tax breaks, which allow private equity managers to pay tax at capital gains tax rates on their ‘carried interests’ (often referred to as ‘the bosses paying less tax than their cleaners’). Will we see an adverse change in this Budget? Maybe some form of consultation will be announced?
Further above inflation increases to personal allowances to edge the personal allowance towards the Liberal Democrats target of £10,000.
Extension of ‘NIC holiday’ for start up companies to all employees taking up their first paid employment in the previous two years.
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