From April 2013:
- the Government has confirmed that the top rate of Income Tax will be reduced from 50% to 45%.
From April 2014:
- the Personal Allowance for Income Tax will reach the Lib Dems’ target of £10,000. It will be increased in subsequent years in line with Consumer Price inflation;
- businesses will be entitled to an “Employment Allowance”: a rebate of £2,000 on National Insurance contributions, delivered through HMRC’s Real Time Information system;
- Stamp Duty on the purchase of shares in growth markets including AIM and the ISDX Growth Market will be abolished.
From April 2015:
- the main rate of Corporation Tax will be reduced to 20% – the joint lowest rate in the G20. At that stage there will be just one rate of Corporation Tax, since the main rate will match the smaller profits rate.
From April 2016:
- The Chancellor confirmed Steve Webb’s statement of last week that the Single-tier State Pension will come into force in April 2016. From that date, therefore, the State Second Pension will be closed and contracting out will be abolished. This means that individuals who are contracted out currently, and their employers, will pay higher National Insurance contributions from 2016. The additional funds raised will be used to pay for the implementation of a key recommendation of the Dilnot report into Long-term Care, imposing a cap of £72,000 on the amount that elderly people will be required to pay towards their social care and extending the means test.
Tax treatment of pension savings
The Budget documents reiterate the announcement made in the Autumn Statement, that the Lifetime Allowance (LTA) will be reduced from £1.5 million to £1.25 million, and the Annual Allowance from £50,000 to £40,000, in April 2014. In relation to the reduction in the LTA, the Government will offer an individual protection régime, in addition to a fixed protection régime, for individuals with pension rights above £1.25 million. There will be a consultation on the detail in the Spring, with a view to including legislation in the 2014 Finance Bill.
As announced in last year’s Budget, legislation will be included in the Finance Bill 2013 to remove the tax and NI incentives from arrangements where an employer pays a pension contribution into a registered pension scheme for an employee’s spouse or family member as part of the employee’s remuneration package.
Funding DB schemes
The Government consulted, earlier this year, on the questions of:
- allowing schemes to smooth asset and liability values in actuarial valuations, so that the deficits are reduced at times of very low Gilt yields and
- requiring the Pensions Regulator to take account of the long-term affordability of deficit recovery plans.
In the Budget it was announced that the concept of smoothing will not be taken forward but the Pensions Regulator will be given a new objective to support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer. The precise wording has yet to be announced; however, any relaxation in the Regulator’s interpretation and enforcement of the legislation will be welcome to employers who are struggling with the economic environment.
Inflation
The Government has reaffirmed the target of 2% pa for Consumer Price inflation, as well as confirming that the Quantitative Easing programme will remain in place for the 2013/14 fiscal year.
The National Statistician announced in January that the Retail Prices Index (RPI) would remain unchanged, although it plans also to introduce a new “RPIJ” based on the Jevons formula as well as “CPIH” including housing costs. The Government has confirmed that it will keep the use of RPI for benefit indexation purposes under review while the new ONS price indices become established. On the other hand, the Budget confirmed that returns on Index-linked Gilts will continue to be calculated by reference to the RPI, an unexpected announcement given the ONS’s statement last week that RPI would cease to be an official “National Statistic”!
Equitable Life
The Government is to make an ex-gratia payment of £5,000 to those surviving Equitable Life policyholders who bought their With-Profits Annuity before 1 September 1992. This will be increased by a further £5,000 for those who are in receipt of Pension Credit. Payments are expected to start in 2014.
And, from next week, you can drink to all that for a penny a pint less (as long as it’s beer)!