The BritishChamber of Commercein Hong Kong

2013 UK Budget Briefing

26 March 2013

Debbie Annells

Managing Director

AzureTax Ltd

AZURE TAX CONSULTING

Budget ReportUK Economy

• The economy is predicted to grow by 0.6% (1.2%) this year, 1.8% (2.5%) next year, and 2.3 % in 2015. The forecast from 2015 remains unchanged.

• Consumer price inflation is expected to reach 2.5% by the end of 2012 before “returning to target in the medium term”. The inflation target remains at 2%, as measured by the Retail Prices Index.

• Unemployment is forecast at 7.9% and then to fall for each of the next four years, to reach 6.9% in 2017.

Borrowing/Deficit

• Public Sector net borrowing is forecast to fall by a third over the 3 years from 2009-10 from its post war peak of 11.2% of GBP to 7.4% of GDP in 2012-13.

It is then forecast to continue to fall to 5% of GDP in 2015-16 and 2.2% of GDP in 2017-18.

• Bank Levy In order to ensure that the bank levy raises at least GBP2.56b

each year the full rate e.g. the levy to increase for 0.105% to 0.130% from 1 January 2013.

In addition the full rate of the levy will be increased to 0.142% from 1 January 2014

This will collect the additional amount from banks which will be needed due to the fall in Corporation Tax receipts.

Government Receipts

Total Revenues GBP612b

Government Spending2013-14

Total Spending GBP720b - approx GBP10,000 per person

• GAAR introduced as from the scheme date of the Royal Assent. The Aaronson report was targeted at specific schemes so hopefully this legislation will be positive.

• There will be no clearance procedure. Taxpayers will have to take a long term view their planning arrangements.

• Corporation Tax down to 20%; flat rate for all companies.

• Personal Allowance at GBP10,000 in 2014/15

• Flat Rate Pension in 2016

• Non domiciled spouses- changes at last

• Deductions for debt for inheritance taxes restricted.

Main Budget Points

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Transfer Pricing

• George Osborne refrained from introducing any transfer pricing measures in his budget for 2013. However, he has confirmed his commitment to working on an international level to tackle base erosion and profit shifting.

• It is now likely that the Chancellor will wait until the meeting of the G8 in June 2013 to launch any transfer pricing changes.

Taxes

• From 4 January 2011, VAT was increased to 20%. VAT threshold for small business has been increased to £79,000 this year.

• Personal Income Tax Allowance to be increased by £1,335 in April 2013 to £9,440 (another 840,000 people will fall out of the tax net) – worth £267 a year to basic rate taxpayers.

• As from April 2014 the Government has met its longer term commitment to increase the Personal Allowance to £10,000 -taking 257,000 individuals out of income tax altogether in 2014-15. By April 2014 the cumulative effect of the Government increase will take 2.7 million people out of the income tax system.

Taxes

• Capital Gains Tax remains 18% for low and middle- income savers and higher rate taxpayers pay 28%. There is no change to the headline rate of 18/28%. Entrepreneurs Relief remains at 10% with a lifetime limit of £10 million.

• Inheritance Tax. The nil rate band of

£325,000 has been frozen for a further three years from 2015-16 until 2017-18.

This announcement supercedes previous announcements.

UK Income Tax rates

2013/14£0 - £2,790 10%*£2,791 - £32,010 20%

£32,011 - £150,000 40%£150,000 and above 45%

* Starting rate for savings income is 10% on income within first £2,790. Dividends rate still 10%, 32.5% and 37.5%

2012/13£0 - £2,710 10%*£2,711 - £32,245 20%

£32,246 - £150,000 40%£150,000 and above 50%

*

(£ per year)

2013/14 2014/15

Personal Allowance (age under 65) 9,440 10,000 Personal Allowance (age 65-74) 10,500 10,500Personal Allowance (age 75 and over) 10,660 10.660

Blind person* 2,160 TBA

Married couple’s allowance* (age 75 and over) 7,915 7,915

Aged income limit 25,400 25,400

UK Personal Allowances

* Abates by £1 for every £2 of income over £100,000 from 2010/11

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Corporation Tax Rates• In the 2012 Autumn Statement the Chancellor had announced that the main

rates of corporation tax were to be reduced.

• In Budget 2013, that the main rate will be cut again to 20% for Financial Year 2015.

Financial Year Main rate Small company rate

2012 24% 20%

2013 23% 20%

2014 21% 20%

2015 20% 20%

As from Financial Year 2015, the main rate and small rate will be the same for the first time, ever. This will make life easier for many accountants and advisers and make the UK more attractive for companies setting up in the UK.

Pensions

Confirming previous announcements…• Salary over GBP180,000 – only basic rate relief• Salary over GBP150,000 – relief reduced on a sliding

scale• In practice those on GBP130,000 or more maybe affected

– salary calculated inclusive of employer pension/charity contributions

• As from 6th April 2014 the annual allowance is being reduced to

GBP40,000 with the lifetime allowance being reduced from GBP1.5m to GBP1.25m.

• Taxpayers may wish to use the current GBP50,000 annual contribution currently in place before 5 April 2014.

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Pensions

• GBP144 per week flat rate pension announced earlier -

ie GBP 7,488 per annum

• Single tier pensions from 2016

• Public Sector pay more NI from 2016

• Aligns NI for all, and to Income Tax. More NI will be collected.

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RESIDENTIAL PROPERTIES• Annual property taxation (ATED -“Annual Tax on Enveloped

Dwellings”) if owned by “non natural persons” effective April 2013.

• Capital gains introduced for gains arising after 6th April 2013, ie for company owned by UK resident non doms.

---------------------------------------------------------------------- Non UK dom Stamp duty 15%

now GBP300,000

BVI Co

GBP2m property Inheritance tax saved 40% > GBP800,000

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Non UK Domiciles

• Remittance Basis Charge was increased to £50,000 in year 12 of UK Tax residence, last year.

• The tax free limit for a transfer to a non-Dom spouse will be increased from £55,000 to the nil rate threshold currently £325,000 for transfer on and after 6 April 2013.

• It will be possible for a non Dom individual with a UK Domiciled spouse or civil partner to elect to be treated as a UK Domiciled for IHT purposes. The earliest date is 6th April 2013, and can later be back dated to this date.

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Inheritance Tax – Debt Deductions

• Currently, inheritance tax is charged on the value of a deceased estate or trust fund net of debts.

• The Chancellor has announced that a specific anti-assistance rule will be introduced for certain debt.

• Where debts have been taken out to purchase assets which are not subject to inheritance tax or is relieved from inheritance tax (such as business property, e.g. shares in trading companies or agricultural land ) this will not be allowable against other non-relievable or relevant property.

The above rules will have significant consequences for many individuals and existing IHT planning arrangements

I

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Stamp Duty Land Tax Rates(on full consideration paid)

Residential Property Commercial Property in England and Wales

1% 1%

3% 3%

4% 4%

5% 4%

7%+ 4%

+ 15% if bought by “non-natural” person as of 22nd March 2012

≥ £150,000

≥ £250,000

≥ £500,000

≥ £1 M

≥ £2 M

FIRST BUY Equity Loan scheme

• Buyers of new build homes can get up to a 20% “equity” loan on the value of the purchase. To be repaid on sale.

• Help to Buy mortgage guarantee scheme also introduced for lenders who offer mortgages to people with a deposit of between 5% and 20%.

• For homes up to GBP600,000; and no income cap constraint

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Mini FATCA Disclosure facility for Channel Islands

• Automatic exchange of information re accounts owned by UK tax residents from 6 April 2013 to 30 September 2016

• Isle of Man, Guernsey, and Jersey. For accounts as from 6 April 1999 and 31 December 2013 – disclosure facility – enables fixed penalty

• Includes UK settlors and beneficiaries of trusts, with undeclared UK taxes.

• Expected to raise GBP1bn or more

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Insurance Policies

• Fees charged by insurer may count in 5% withdrawal limit

“RDR” Rules – ask for a Direct Fee charge by your Financial Adviser.

• The new SRT , from 6 April 2013, means if there is only a temporary non UK residence period (less than 5 yrs)

Chargeable event comes into UK Income tax net in year of return to UK.

• Existing Offshore Personal Bond, if not endorsed to avoid S739 charge, has a 15% annual tax charge regardless of performance

• Basis of calculation of chargeable event or gain / time appointment relief changed.

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TOP UK TAX TIPS - 2013/2014

• IHT - Annual gift value £3,000• CGT - Annual Exemption £10,900• Charitable donations for the Tax payer - up to 45% relief• NI – no rates changed. New employment allowance will

cancel out the first £2,000 of Employer Nil costs for every business and charity as from 6 April 2014.

• ISA’s £11,520 ( £5,760 in cash)• VCT £200,000 (30% tax relief) • EIS £500,000 (20% tax relief increased to 30% in Budget).

(58% relief inc CGT) • Seed Enterprise Investment Schemes extended for one year• GBP50,000 pension contribution before 6th April 2013 and

6th April 2014.

Any Questions?