Chancellor George Osborne has said that hard evidence shows that the plan is working, but that difficult decisions still need to be taken to reduce the deficit and balance the books.
Economic Growth and Employment
Growth forecasts have increased:-
- from 0.6% to 1.4% for this year
- from 1.8% to 2.4% for next year
- for the following four years to 2.2%, 2.6%, 2.7% and 2.7%.
It is expected that 400,000 extra jobs will have been created this year and unemployment is forecast to fall to 5.6% by 2015.
Borrowing and Debt
The UK’s “underlying deficit” has been reduced from a previous high of 11% down to a reduced revised forecast of 6.8% this year, 5.6% next year. The revised forecast by the Office for Budget Responsibility indicates that the deficit will be reduced year on year until there is a small surplus in 2018/19.
Personal Taxes and Savings
The personal income tax allowance will rise to £10,000 from April 2014 and the amount which can be saved in an ISA will be increased (in line with inflation) from £11,520 to £11,880.
From 2015/16 spouses and civil partners will be able to transfer £1,000 of their income tax personal allowance to their spouse or civil partner where neither party is a higher or additional rate taxpayer.
Capital Gains Tax will be payable from April 2015 on future gains made by non-residents disposing of UK residential property.
Private Residence Relief for Capital Gains Tax will cease to apply 18 months after a property ceases to be occupied (reduced from 36 months).
Due to a rise in life-expectancy the state pension age is set to increase to 68 in the mid-2030s and to 69 in the late 2040s. The principle is that people should expect to spend up to a third of their adult life in receipt of state pension. The state pension will rise by £2.95 a week in April next year.
A new class of voluntary National Insurance Contributions will be introduced in October 2015 to allow pensioners who reach state pension age before 6 April 2016 an opportunity to top up their Additional Pension Records.
Inheritance tax and trusts
Legislation will be introduced to:-
- simplify filing and payment dates for IHT relevant property trust (RPT) charges
- treat income arising in RPTs which remains undistributed for more than 5 years as part of the trust capital when calculating the 10-year anniversary charge.
Changes to Vulnerable Beneficiary trusts are envisaged to:-
- extend with immediate effect from 5 December 2013 the CGT ‘uplift’ provisions that apply on the death of a vulnerable beneficiary
- extend from 2014-15 the range of trusts that qualify for special income tax, CGT and IHT treatment.
The government will consult on:-
- proposals to split the IHT nil rate band available to trusts with a view to delivering this change in 2015
- ways to reform the tax treatment of trusts established to safeguard property for the benefit of vulnerable people.
During 2015-16, HMRC will provide an online service for IHT to reduce administrative burdens for customers and agents.
Education and Families
Extra funding was announced for science, technology and engineering courses.
An additional 20,000 apprenticeships will be introduced over the next two years.
From next September all infant pupils at state schools in England are to get free school lunches
Fuel and Trains
Fuel duty will be frozen for the remainder of the parliament.
An electronic system will replace the current tax disc system.
Train fares will rise in line with inflation (not 1% above RPI as previously announced).
A saving of £50 in household bills is promised together with support for the poorest families and incentives to undertake efficiency measures for new homeowners.
Support for Businesses
Rates relief for small businesses will continue from April this year, and the RPI in business rates will be capped at 2% in 2014-15 with an option to pay rates in 12 monthly instalments.
Rates will be reduced by 50% for 18 months for businesses reoccupying empty shops.
The Government has promised to take robust steps to close down avenues for tax avoidance and aggressive tax planning.
To tackle tax avoidance by large business, measures are being enacted to prevent tax avoidance resulting from:-
- artificial diversion of profits to controlled foreign companies
- schemes involving groups of companies using total return swaps
- claims for double taxation relief made under 2 loopholes.
To tackle tax avoidance by the richest, measures will be taken:-
- to tackle tax avoidance by high-earning non-domiciled employees artificially shifting some of their employment income offshore
- to prevent large professional partnerships and wealthy individuals concentrated in private equity from abusing the rules on compensating adjustments in the transfer pricing code
To prevent avoidance of employment taxes steps will be taken to prevent employers and employment intermediaries from avoiding employer National Insurance Contributions and circumventing their employer obligations. This will stop companies disguising employment as self-employment.
To clamp down on tax avoidance schemes:-
- new requirements will be introduced for users of failed avoidance schemes
- sanctions and obligations for high-risk promoters of tax avoidance schemes are being increased
- a new power will be introduced requiring taxpayers who use avoidance schemes that have been defeated through the courts to pay the tax in dispute with HMRC upfront.
Regarding partnerships and LLPs, changes to the tax system are being introduced to prevent tax-motivated allocations of business profits and losses in “mixed member” partnerships (those where partners or members include both individuals and non-individuals, commonly company members).
The changes will take effect from 6th April 2014 but anti-avoidance rules concerning tax-motivated profit allocations will come into force on 5th December.
Ed Balls, the shadow Chancellor, argued that the plans amounted to “tinkering around the edges” in a climate where ordinary people were significantly worse off in real terms.
For further information please contact a member of our Wills, Estates & Tax planning team.