Income Tax and Personal Savings

Income tax rates

  2012/13 2011/12
Basic rate band – income up to £34,370 £35,000
Starting rate for savings *10% *10%
Basic rate 20% 20%
Dividend ordinary rate 10% 10%
Higher rate - income over £34,370 £35,000
Higher rate 40% 40%
Dividend upper rate 32.5% 32.5%
Additional rate – income over £150,000 £150,000
Additional rate 50% 50%
Dividend additional rate 42.5% 42.5%
*Starting rate is for savings income up to the starting rate limit of £2,710 (£2,560) within the basic rate band. The rate applies to any balance of the limit remaining after allocating taxable non-savings income.

Personal allowances (ages are as at the end of the tax year)


Personal allowances 2012/13 2011/12
Personal allowances (PA) under 65 £8,105 £7,475
  65 to 74 £10,500 £9,940
  75 and over £10,660 £10,090


The personal allowance for those aged under 65 increases from 6 April 2012 to £8,105. The advantage to higher rate payers is countered by a lowering of the higher rate threshold, to £34,370 from 6 April 2012.

Married couple's allowance (MCA) 2012/13 2011/12
Either partner born before 6 April 1935 (relief restricted to 10%)
£7,705 £7,295

 

Age-related allowances are reduced by £1 for every £2 that adjusted net income exceeds £25,400 (£24,000), to a minimum PA of £8,105 (£7,475).

The MCA is reduced by £1 for every £2 by which the income of the spouse or civil partner with the most income exceeds £24,000 (£22,900), subject to a minimum of £2,960 (£2,800).

Where adjusted net income exceeds £100,000, the PA, including the minimum age-related allowances, is reduced by £1 for every £2 that net adjusted income exceeds £100,000 until it is nil.

Individual Savings Accounts (ISAs)

The annual ISA subscription limit for 2012/13 will rise from £10,680 to £11,280, up to £5,640 of which can be invested in a cash-only ISA.

The subscription limit for Junior ISAs, which are available to those aged under 18 who do not have a Child Trust Fund account, will remain unchanged at £3,600.

Furnished Holiday Lettings (FHLs)

The rules on FHLs have been subject to a number of changes in recent years, and further changes apply from the 2012/13 tax year.

From April 2012, the following tests must be satisfied in order for a letting to qualify as an FHL:

  • the property must be available for commercial letting as holiday accommodation for a minimum of 210 days during the relevant period
  • the property must actually be let to the public for a minimum of 105 days during the relevant period
  • the accommodation must not be let for periods of longer term occupation (over 31 days) for more than 155 days in the tax year.

Child Benefit

A new income tax charge will apply to taxpayers who receive Child Benefit themselves or whose partner receives Child Benefit. The charge will only apply to those whose income is more than £50,000 for the tax year. If both partners have income of more than £50,000 for the tax year, the charge will apply only to the partner with the highest income.

For this purpose, a partnership comprises: a married couple living together; civil partners living together; a man and a woman who are not married to each other but who are living together; or a man living with a man or a woman living with a woman who are living together as if they were civil partners.

For people with income between £50,000 and £60,000, the amount of the charge will be a proportion of the Child Benefit received. For those with income above £60,000, the amount of the charge will equal the amount of Child Benefit received. For example, Child Benefit for two children is £1,752. For someone whose income is £54,000, the charge will be £700.80 – i.e. £17.52 for every £100 earned above £50,000. For one whose income is £62,000, the charge will be £1,752.

The amount of Child Benefit payable will be unaffected by the new tax charge. However, Child Benefit claimants will be able to elect not to receive the benefit if they or their partner do not wish to pay the new charge. That election may subsequently be withdrawn if the circumstances change.

This measure is to come into effect from 7 January 2013. HMRC will contact people earning over £50,000 about the new charge from Autumn 2012.

Personal allowances and tax rates for 2013/14

The basic and higher rates of income tax will remain at 20% and 40%, respectively, while the additional rate will be reduced to 45%. The dividend additional rate will be set at 37.5%, the trust rate will be set at 45% and the dividend trust rate will be set at 37.5%.

For 2013/14 the personal allowance for those born after 5 April 1948 will be set at £9,205 and the basic rate limit at £32,245.

From 2013/14, the age-related personal allowances will not be increased and their availability will be restricted to people born on or before 5 April 1948:

born 6 April 1938 – 5 April 1948

£10,500

born before 6 April 1938

£10,660

Cap on unlimited tax reliefs

Legislation will apply a cap on income tax reliefs claimed by individuals from 6 April 2013 where they are currently unlimited. For anyone seeking to claim more than £50,000 in reliefs, a cap will be set at 25% of income (or £50,000, whichever is greater).

Domicile and residence

From 6 April 2012 the £30,000 annual Remittance Basis Charge (RBC) will be increased to £50,000 for resident, non-domiciled individuals (non-doms) who have been UK resident for at least 12 out of the last 14 years. The £30,000 RBC will continue to apply for those who have been resident for at least 7 out of the last 9 years. However, the remittance basis tax charge will not apply where non-doms remit foreign income or gains to the UK for the purpose of commercial investment in UK businesses, nor (subject to conditions) when certain property is brought to, and sold in, the UK and the proceeds are then taken offshore.

Complex (and generally not beneficial) identification rules apply if a non-dom remits nominated income or gains before remitting all other offshore income and gains of the year. A slight relaxation applies from 6 April 2012, allowing up to £10 of a year’s nominated income and gains to be remitted without triggering the identification rules.

Following a Government consultation, the introduction of the statutory residence test has been delayed until April 2013. Any reforms to ordinary residence will be introduced at the same time.

Also proposed for 2013 is legislation to increase the inheritance tax-exempt amount that a UK domiciled individual can transfer to their non-UK domiciled spouse or civil partner. The Government similarly proposes to allow individuals who are domiciled outside the UK and who have a UK domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of inheritance tax.

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