With the 2013 Budget just around the corner, we thought it was time for another word from our resident Financial Advisors, Paradigm Capital, on the changes coming up to personal tax, and how they’ll impact you and your business.

There are some useful improvements to individual tax benefits coming up – although we don’t know when many will be brought into force yet. The following are the most significant changes that Crunch clients need to know about.

From April 6th 2013 the Personal Allowance will increase to £9,440. The Personal Allowance is the amount an individual can earn before he or she starts paying tax. The 2013 change is the largest ever such increase in one tax year, rising from the current level of £8,105.

The ISA investment allowance for the tax year 2013-14 will be raised to £11,520. Up to £5,760 of that allowance can be saved in a cash ISA. The remainder of the £11,520 can be invested in a stocks and shares ISA with either the same or a different provider.  The Junior ISA investment allowance for the tax year 2013-14 will be raised to £3,720, as will the Child Trust Fund investment allowance.

The maximum rate of income tax will fall from 50% to 45% from April 6th (this applies to those earning in excess of £150,000).

The Basic State Pension will increase from £107.45 per week to £110.14 per week.

On the downside

From April 6th there is a reduction in the amount a person can earn before he or she starts having to pay the 40% tax rate. In the current Tax Year (2012/2013) the 40% rate kicks in on earnings above £42,475. In 2013/2014 it will take effect at the lower level of £41,450.

The maximum pension contribution annually will reduce from £50,000 to £40,000, but not until 2014/2015. This means it will still be possible to contribute up to £50,000 in 2013/2014.

(Note: there is no change to the rule that the maximum personal contribution an individual can make is limited to 100% of their taxable earnings; so, if their total taxable earnings are less than £50,000, this earnings level becomes their limit. However, there is also no change to the fact that a company can contribute up to £50,000 to an employee’s pension – even if that is more than his taxable income)

Financial Advice in 2013

This year will see the FSA (Financial Services Authority) morph and divide itself into two new bodies – the FCA (Financial Conduct Authority) and the PRA (Prudential Regulatory Authority). We will have to wait and see whether this change will mean better products and service for the consumer. One immediate benefit, however, is that the minimum technical requirement for those advising on investment, pensions and annuity has been increased. While examinations are not necessarily a true measure of understanding and ability, they can have value. Another change is that investment, pensions and annuity advice will now be charged for on a fee basis, rather than being paid by commission as was generally the case before.

The intention is to bring the profession in line with other professions such as solicitors and accountants. We will need to see how the public responds to this major change. Advisers in 2013 will also be split into two groups – those who provide independent advice from across the market and those who provide advice restricted to certain parts of the market. Paradigm Capital will continue to provide independent advice.