UK: Budget 2012

Last Updated: 26 March 2012
Article by Fay Copeland

The Chancellor has today presented his Budget. Some of his announcements and proposals were in line with expectation; others caused more of a stir. The main points of interest for private individuals are set out below:

Personal Taxes

Whilst some will welcome the changes, not all will be pleased with the impact on their own tax position:

Income tax:

  • Top rate of income tax to be cut from 50p to 45p from April 2013
  • Income tax personal allowance to be increased to £9,205 from April 2013 (an increase of £1,100 in cash terms, though for higher rate taxpayers this will be partially offset by a reduction in the higher rate threshold from £34,370 to £32,245 in 2013)
  • Income tax age-related allowances to be phased out from April 2013
  • A cap on income tax reliefs to be introduced from April 2013, limiting relief to £50,000 or 25% of income (whichever is the greater) where relief in excess of £50,000 is being claimed.


  • CGT exemption to remain at the 2011-12 level of £10,600 for 2012-13 and thereafter to rise in line with the consumer price index (no longer in line with RPI)
  • No changes to CGT rates for 2012-13
  • Consultation announced on extending the CGT regime to gains on disposals of UK residential property by "non-resident, non-natural persons"; legislation to be introduced in the Finance Bill 2013.


  • Nil rate band to be frozen at £325,000 until April 2015. Thereafter to rise inline with the consumer price index (no longer in line with RPI)
  • Lower rate of IHT of 36% where 10%+ of an estate is left to charity
  • An increase to the spouse exemption for transfers from a UK to a non-UK domiciled spouse, likely to be introduced in 2013.

Stamp Duty Land Tax (SDLT) and UK Residential Property

Some dramatic changes were announced to the SDLT regime:

  • A new SDLT rate of 7% has been introduced for the acquisition of UK residential property (freehold or leasehold) where the purchase price or premium exceeds £2 million, effective from 22 March 2012. (Transitional measures will apply to transactions where exchange of contracts has already taken place, but not completion.)
  • 15% SDLT will be applied to the acquisition of UK residential property by "certain non-natural persons" where the purchase price or premium exceeds £2 million, effective from Budget day. This will apply to the acquisition of property by companies.
  • The Government is to consult on introducing an annual charge on residential properties valued at over £2 million owned by "certain non-natural persons" (e.g. companies) with a view to the legislation being introduced in April 2013.
  • Legislation will be introduced to shut down schemes predicated on the basis that a second-leg option contract falls within the sub-sale rules (though we understand that a number of these schemes are already under review by HMRC).

The third measure mentioned above is a variation on the much-hyped "mansion tax" which some thought might be introduced. Hopefully the consultation period will at least allow time for those who may be affected to take advice and restructure their affairs accordingly, though that remains to be seem. There appears to be little such opportunity for those affected by the introduction of the new 7% and 15% rates. The intention is clearly to discourage the use of companies and other structures to hold UK residential property, overlooking the fact that in many cases tax avoidance is not the primary (or sole) purpose for using a structure (e.g. asset protection, estate planning, anonymity).

General Anti-Avoidance Rule

The Chancellor confirmed that legislation is to be considered, with a view to implementation in 2013, to tackle artificial and abusive tax avoidance schemes. A consultation period will now follow.

International Clients

The points that will most interest our international clients will be:

  • New 15% SDLT rate for residential properties over £2 million held through companies (and proposed annual charge)
  • Changes to the IHT spouse exemption between UK domiciled and non-domiciled spouses, likely to be introduced in 2013
  • An increase in the "remittance levy" to £50,000 for non-domiciliaries who have been UK tax resident for 12 years or more
  • A test for statutory residence and the reform of ordinary residence from April 2013; draft legislation for consultation to be published after this Budget
  • The ability for resident non-domiciliaries to bring their overseas income and gains into the UK to make a commercial investment in a qualifying business without making a taxable remittance after 6 April 2012.

Over the coming days and weeks, we will be keeping all of these developments under close review and assessing their full impact. We will be considering carefully what opportunities remain available for planning to minimise the impact of the more onerous of these proposals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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