December 24th, 2012
There are several aspects of tax or other reforms that may be affecting you, or will potentially affect you in the future, so this article should hopefully serve as a timely reminder.
All families in receipt of child benefit will have received a letter by now from HMRC reminding them of the introduction of the benefit reduction for those with an adjusted net income over £50,000. The reduction impacts child benefit paid on and after 13 January 2013 for any families where one of the incomes in the household is over £50,000, with the benefit reducing by 1% for every £100 over this until it is effectively lost if earnings are £60,000, or more. If you are the main earner then you may suffer a tax charge if you or your partner are still receiving the benefit (although it is still important to register for child benefit to protect other entitlements)
If you are affected, there are ways of reducing your adjusted net income via pension contributions, salary sacrifice or gift aid contributions, so consideration should be given to these now to ensure that this year’s benefit is not impacted.
Remember that we are approaching the end of the tax return season with the last date for an online tax return being 31 January 2013; failure to submit a return on time will invoke the wrath of HMRC and appropriate fines for late filing will be payable.
New additional tax rate for 2013/14
As you may already know, the additional rate tax rate for those earning over £150,000 will be reduced next tax year from 50% to 45%. and those affected may need to consider the impact this will have on any current plans.
For example, if you are looking to make a pension contribution, by waiting until next tax year the maximum relief you will receive is 45%. If you have sufficient income in excess of the additional rate tax band, you may therefore want to consider making the contribution this tax year instead in order to benefit from the higher 50% relief.
Depending on the size of contribution though, this may require you to carry forward previous years’ unused annual allowances to avoid a tax charge and/or manipulate a pension input period in order to bring forward next years annual allowance. These, however, are complex issues which you should receive advice from a financial adviser on to confirm the position.
Rest in peace RPI?
The inflation-linking of pensions and state benefits is an important element of our finances as the real value of our money depends on the measure of inflation used
The key measures of inflation are currently the Retail Price Index (RPI) and Consumer Price Index (CPI).
Whilst, however, RPI includes owner-occupied housing (OOH) costs, such as mortgage interest payments and council tax, these costs are not included in the CPI measure which is particularly significant for the UK, where CPI is used, because housing costs represent approximately a tenth of all households’ expenditure. The Government’s decision in 2010 to replace RPI with the (lower) CPI figure as the statutory minimum rate by which private sector occupational schemes must revalue members’ benefits each year – and bearing in mind that most state benefits are also now increased in line with CPI each year – has also had a negative impact.
The Office for National Statistics are therefore intent on redressing this problem by creating a new Consumer Price Index with housing costs included (referred to as CPIH).
Unlike RPI though, ONS will not use mortgage interest costs as a means of measuring OOH costs. Instead, they will use the rental equivalence method using the private housing rental market as a proxy measure of the costs incurred in owning a property.
Although this should not have an immediate impact the indications are that this could supplement CPI or even RPI in the future which in turn could impact on pensions and any other benefits that currently rely on these indexes.
Watch this space!
Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor