UK Budget 2013: How will the proposed changes affect you?
Among the memorable details some may remember about Chancellor George Osborne’s 2013 Budget speech – long after the most important facts, or the choice of tie on the day, have been forgotten – could include its having taken place against the backdrop of another EU country, Cyprus, teetering on the brink of financial collapse. But in years to come, George Osborne’s 2013 Budget might come to be regarded as one of the most memorable Budgets – at least from an “offshore” perspective. Why??
Residence is a pillar of any tax system. Since Pitt’s introduction of income tax in 1799, the UK has had a tax code where liability depended (at least to some extent) on the residence status of the individual. Pitt managed to design a system where residence wasn’t defined. Now, 214 years later, George Osborne has remedied Pitt’s omission.
The UK inheritance tax code has domicile (rather than residence) as a pillar. This has had interesting consequences as international social mobility has increased. It is fair to say though, that the UK system has always had difficulties with cross border relationships.
The treatment of transfers from a UK domiciled individual to a non-UK domiciled spouse was widely seen as discriminatory – though surprisingly it was never formally challenged in the European Court of Justice or the European Court of Human Rights. Osborne has come up with a solution – perhaps not the ideal solution but one which is at least workable.
Britain’s Crown Dependencies have, in the past, been repositories for “hot money” though today they have robust anti money laundering regimes. Under Osborne’s Chancellorship the UK has agreed a comprehensive package of measures with the Isle of Man, Guernsey and Jersey governments to clamp down on those who choose to hide their money offshore.
The agreement provides for automatic exchange of a wide range of financial information on UK taxpayers with accounts in the Isle of Man, Guernsey and Jersey.
This will significantly enhance HMRC’s ability to crack down on those who do not declare their offshore income or who “hide” capital derived from taxable activities in the UK in one of the Dependencies. There will also be a facility to allow people to come forward and disclose their previous tax offences in advance of information being automatically exchanged.
Finally, there are the proposed changes to the UK pension system. The chancellor’s decision to accelerate the introduction of the flat rate state pension has been described as a “cash grab on pensions”, after it emerged it will bring an extra £5bn into Treasury coffers.
The budget statement included confirmation that the single tier pension will be introduced in 2016, a year earlier than previously planned, bringing an extra 400,000 people into the new regime. George Osborne said the early introduction of the £144 p/week payment would “help the low paid, the self-employed and millions of women most of all”.
But he also acknowledged that this would mean all employees in defined benefit schemes, where payments are guaranteed, would pay higher national insurance contributions from 2016 as a result. This is because there will no longer be a second state pension which they can “contract out” of, a process which allows them to divert national insurance contributions to their employer’s pension scheme.
“Private sector employers can adjust their pension benefits to accommodate the extra cost; public sector employers will have to absorb the burden, as is always the case with tax changes,” Osborne said. “Any spending review in the next parliament will, of course, take the £3.3bn cost into account.”
The UK’s largest trade union, Unison, said the move was a “cash grab that could have serious implications for pension schemes in the public and private sectors”.
“Yet again the government has failed to think through the implications of its policies properly,” Unison’s head of pensions Glyn Jenkins said. “There is a real danger the move could fuel deeper cuts to public services and jobs, as well as be the final nail in the coffin for the few decent pension schemes surviving in the private sector. We are calling on the government to help employers and employees deal with the consequences.”
Other pensions experts warned that introducing the scheme with no flexibility could lead some companies to close their schemes. Joanne Segars, chief executive of the National Association of Pension Funds, which represents scheme providers, said: “If the government gets it wrong then it risks sparking a fresh round of final salary pension closures in the private sector.
“Businesses that get caught on the wrong side of these changes will lose a significant rebate from the end of contracting out, and this extra cost may prompt them to close their pensions altogether.” (Source: International Adviser)
To see if any of these changes will affect you and to determine if your own UK pension scheme could be at risk because of this, it’s vital that you seek advice from a qualified financial advisor. Our advisers are always on hand to assist you, so please feel free to contact us.
The above article is reproduced by Asia Pacific Pensions who can be contacted either by email at [email protected] or alternatively by telephone on either 038 074644 or 0800 178 269.
The information provided in this article is not intended to offer advice. It is based on Asia Pacific’s interpretation of the relevant law and is correct at the date of printing this article. While we believe this interpretation to be correct, we cannot guarantee it.