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Family Law Week's Budget Briefing 2012

Steve Crompton & David Kitson, Tax Directors at RSM Tenon, review the Chancellor’s 2012 Budget announcements

Steve Crompton, Tax Director, RSM Tenon David Kitson, Tax Director, RSM Tenon 



Steve Crompton and David Kitson, Tax Directors, RSM Tenon

Chancellor George Osborne's third budget contained a number of measures of which family law practitioners concerned with their clients' matrimonial or family circumstances ought to be aware.

Practitioners will need to factor in the proposed changes to the pensions regime. The incentives for businesses include schemes from which solicitors' firms themselves might be able to benefit.

Economic Background
The Chancellor was keen to re-emphase that he wanted a far simpler tax system, so businesses can easily navigate and ordinary taxpayers understand what they are being asked to pay. However he made it clear that his intention was to continuing to control spending.

Of the measures announced, the main headline changes revolved around encouraging investment in the UK, obtaining the right amount of tax from UK resident individuals and minimising the tax liability on the sale of businesses by entrepreneurs.

Tax Evasion and Avoidance
The Chancellor confirmed that he regards tax evasion, and for that matter aggressive tax avoidance, as morally repugnant. Tax Evasion is a deliberate act that ensures that taxes go unreported and unpaid. It is a criminal offence and will continue to be a priority of the Revenue.  Aggressive avoidance of taxation by contrived schemes will be tackled by the proposal to adopt a General Anti-Avoidance rule. Further consultation on this will continue, with such a rule being introduced in 2013.

Corporation Tax 
To encourage overseas investment in the UK, the Chancellor announced that the mainstream rate of corporation tax would decrease from the current rate of 26% to 24% from 1 April 2011, with a further 1% decrease in each of the following two years. This would give the UK one of the lowest rates of corporation tax in Europe by 2014, at 22%. The small company's rate will remain at 20%.

Incentives to Businesses
As an incentive to invest in small businesses, the Chancellor announced a new Seed Enterprise Investment Scheme ("SEIS"). Whilst the proposal is likely to be subject to European State aid approval, the rate of income tax relief will be 50% rather than 30% (on normal EIS) from 6 April 2012, making this a very generous relief for those willing to invest in small trading companies. An additional benefit is that gains made in 2012/13, which are invested through SEIS, also in 2012/13, which be exempt from Capital Gains Tax.

Investment in infrastructure for businesses will increase through Enterprise Zones. The Chancellor confirmed that a full list of zones will be published soon.  The allowances at 100% of capital spend will be available from 1 April 2012.

The Chancellor confirmed his commitment to developing technology in the UK with increased funding for certain research organisations. In addition, for companies that qualify as small or medium sized entities ("SME's") under the Research & Development ("R & D") tax relief scheme, the rate for qualifying expenditure will increase to 225% from 1 April 2012.  Both the SME payable credit and minimum spend limits will also be removed from 1 April 2012, giving an additional incentive for SME's that are investing modest amounts in R & D activity.

Capital Gains Tax: Entrepreneurs Relief
A surprise announcement was the extension of Entrepreneurs Relief to Enterprise Management Incentive ("EMI") option holders. This will allow gains made on shares acquired through EMI (where the individual limit has gone from £120,000 to £250,000) to have an effective rate of tax at 10% (on the lifetime allowance of £10 million) rather than the rate of 28%.  This returns EMI option holders to the position they were in prior to the introduction of Entrepreneurs relief only a few years ago.

In addition, there will be consultation on wider employee share ownership during 2012, which as most EMI option holders have less than 5%, could remove this barrier which prevents an employee of small minority shares claiming Entrepreneurs Relief.

Personal Allowance
For individuals, the previously announced increase of £630 in the personal allowance will take effect from 6 April 2012, taking the basic personal allowance to £8,105 with a further increase of £1,100 announced from 6 April 2013. The Chancellor also confirmed that the 50% income tax rate for individuals with income over £150,000 per annum will reduce to 45% from 6 April 2013.

First Time Buyers
Other announcements made in the 2011 Budget included measures to help first time buyers get onto the property ladder with a £250 million commitment to a new joint ownership scheme. Although the details of the scheme are still to be announced, the Chancellor hopes that this measure will significantly help the first time buyer obtain their own home.

Integration of National Insurance and Income Tax
Going forward, the Chancellor announced his intention to align increases in national insurance with the Consumer Prices Index (CPI), consult on the current systems of income tax and national insurance with the aim to integrate the two systems at a future date.

Inheritance Tax Developments
The Treasury will also look at reducing the rate of inheritance tax charged on an estate where the estate includes a donation of at least 10% of the value of the estate to charity.

High Value Properties and Stamp Duty Land Tax
The Chancellor announced a new rate of Stamp Duty Land Tax ("SDLT") from 22 March 2012, for residential properties beyond £2m, of 7%.  Measures have also been announced to tackle the 'widespread' evasion and avoidance of tax on high value properties, with a number of targeted avoidance rules.
In addition, those residential properties beyond £2m bought by limited companies, will have an SDLT rate of 15%, again effective from 22 March 2012.

Child Benefit
Child Benefit will be withdrawn when someone in a household has an income of more than £50,000. The benefit will be withdrawn gradually: 1 per cent of Child Benefit for every extra £100 earned over £50,000. Those with an income of more than £60,000 will lose all their Child Benefit.

Although this year's Budget was limited in the number of tax cuts that were made, those that we have seen will be welcome news to businesses and the entrepreneur.

Legal Advice Funding
£20 million will be provided to the not-for-profit advice sector in both 2013-14, and again in 2014-15 as it adapts to changes in its funding.

The tax changes, an overview of tax legislation and tables of tax rates, allowances and thresholds can be viewed on the Treasury website.

To read responses to the Budget by Child Poverty Action Group and other children's and family organisations, please click here.