Earlier this year, the Government published a Tax Consultation Framework which promised a new way of introducing tax legislation. Objectives will be set out each year in a spring Budget, followed by a period of consultation, culminating in the exposure of draft legislation at least three months before it becomes effective. The hope is that this will lead to better legislation.
Making progress
In keeping with this timetable, on 6 December 2011 the Government published various consultation responses and much of the draft legislation that will eventually appear in the 2012 Finance Act. In addition, the Chancellor made a couple of tax-related announcements in the Autumn Statement on 29 November 2011. While the new framework may give us better legislation, the proposed new rules, overview and explanatory notes totalled 1,405 pages – even before taking into account the ancillary reports. It's likely then that the Finance Act 2012 will put us in the lead when it comes to producing 'the longest tax code in the world' – not an accolade to be proud of.
A by-product of this new policy framework is that there are fewer opportunities for the Chancellor to pull any rabbits out of the hat. In fact, there were few unexpected tax shocks contained in the Autumn Statement or the 6 December package.
Residence test
It was disappointing to learn that the new statutory residence test will be delayed for 12 months to April 2013, bearing in mind that the current residence tests have caused considerable confusion over recent years. On the other hand, it is perhaps better to wait for improved legislation that reduces the need for taxpayers to fight their case in court.
Personal allowances
In 2010, the incoming Coalition Government pledged to work towards a personal allowance of £10,000 during the lifetime of this parliament. In the March 2011 Budget, the Chancellor announced that the allowance for 2012/13 will be increased to £8,105, which is a step closer to that goal. This is a welcome move as it makes no sense for the Government to take tax from low-paid individuals with one hand and give them back by way of benefits with the other. However, the Budget documents also included a note that the tipping point where taxpayers start to pay the higher rate of 40% will be the same for 2012/13 as it is this year (£42,475). As a result of 'fiscal drag', i.e. the effect of inflation-linked wage increases, this is likely to mean more people will be paying the higher tax rate next year based purely on wage inflation.
Child benefit
Some families will suffer a double whammy from April 2013 given the Chancellor's previous announcement that child benefits will be withdrawn from this date for higher-rate taxpayers.
CPI-linked
In the March Budget, we were warned that in future, allowances and thresholds will be index-linked to the Consumer Prices Index (CPI) rather than the Retail Prices Index. The necessary legislation is being put in place to achieve this for the IHT nilrate band and the CGT annual exemption. This is academic for IHT given the nilrate band is frozen until 2015. Similarly, the CGT annual exemption for 2012/13 has been frozen at the 2011/12 level of £10,600. However, we should be grateful for small mercies. The Liberal Democrat manifesto called for the exemption to be drastically reduced, so freezing it seems to be the lesser of two evils.
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