Budget Commentary 2013

20th March 2013

The Chancellor announced that his Budget today will help those who aspire to work hard and get on, buy a home, start a business or save for retirement.

As an employer, it is important to consider the changes that will be introduced on 6 April 2013 and those that will come into effect from 6 April 2014. 

Now is the time to consider the opportunities available to employees in order to maximise their pension contributions and enjoy higher rate tax reliefs prior to the changes coming into effect.

Income Tax

The Personal Allowance will increase to £9,440 on 6 April 2013 and to £10,000 on 6 April 2014.

The basic rate tax band will be £32,010 and the higher rate threshold will be £41,450.

The basic and higher rates of income tax will remain the same, but the additional rate of income tax will reduce from 50% to 45%.

What should your employees consider?

Employees liable for the 50% additional rate of tax should consider paying Additional Voluntary Contributions (AVCs) before 6 April 2013 in order to benefit from 50% tax relief in the current tax year rather than 45% which will be available after 6 April.

Lifetime Allowance reduction for pension savings

The Chancellor has confirmed that from 6 April 2014 the Lifetime Allowance for pension savings will reduce from the current £1.5 million to £1.25 million. To prevent any retrospective tax charge a new Fixed Protection 2014 will be introduced. The Government will also consult on a new individual protection regime.

What should your employees consider?

• Determine whether they would be impacted by the reduced Lifetime Allowance.
• Consider applying for the new Fixed Protection 2014 or individual protection, if appropriate.
• For those with pension savings between £1.25 million and £1.5 million, consider building up their pension savings, within HMRC limits, to £1.5 million before 6 April 2014 and so protect the higher amount.
• Consider any alternative options to remaining in the pension scheme.

Annual Allowance reduction for pension savings

The Chancellor has confirmed that from 6 April 2014 the Annual Allowance for pension savings will reduce from the current £50,000 to £40,000.

What should your employees consider?

• Use any unused carry forward allowance from 2009/10 before 6 April 2013. If it is not used, it will be lost.

ISA Allowance

From 6 April, the overall annual limit for Individual Savings Accounts (ISAs) will increase to £11,520.

Half of this can be saved in a cash ISA. The rest, or the total amount, can be invested in a stocks and shares ISA.

State Pension

The Chancellor confirmed the introduction of the single tier State Pension, worth about £144 a week, will be brought forward to 2016. This will end contracting out of the State Second Pension leading to increased National Insurance Contributions (NICs) for both employers and employees. Legislation will be introduced to enable employers to increase pension scheme members’ contributions or reduce their benefits to reflect the additional cost.

What should your employees consider?

• If the employer allows, consider paying pension contributions under a salary sacrifice arrangement and so save National Insurance contributions for both employer and employee.

To ensure you understand the impact of the Budget 2013, please contact us.