Treasury and Resources
Ministerial Decision Report
2012 Budget proposition and Draft 2012 Budget Statement
- Purpose of Report
The purpose of this report is to enable the Minister for Treasury and Resources to lodge the draft 2012 Budget proposition and the draft 2012 Budget Statement.
- Background
The 2012 Budget proposition and the draft 2012 Budget Statement detail the proposed tax measures to be introduced.
- Main Content
The 2012 Budget proposition is to ask the States to decide if they approve the estimate of total taxation revenue in 2012 of £574,778,000 to be raised through existing taxation measures and the proposed changes to income tax, goods and services tax, impôts duty, stamp duty and land transaction tax court fees for 2012.
The draft 2012 Budget Statement details the proposed changes to income tax, goods and services tax, impôts duty, stamp duty and land transaction tax court fees for 2012. A summary of the proposed measures are listed below:
Income Tax Proposals
Unless specifically stated, all changes come into effect for year of assessment 2012.
Exemption thresholds
The Minister proposes to increase the income tax exemption thresholds for the year of assessment 2012 by 4.5% in line with the increase in inflation in 2011.
Allowances
It is proposed to retain allowances at the same level as in 2011.
Enhanced childcare tax relief
It is proposed that the maximum childcare tax relief which marginal rate taxpayers can claim in respect of a child up to and including the year in which the child becomes eligible for States funded early years education is increased from £6,150 per year to £12,000 per year.
It is also proposed that childcare tax relief is extended such that fees paid to States provided nursery schools, which will start being charged in September 2011, fall within the scope of childcare tax relief. Both of these measures come into effect for year of assessment 2011.
Restriction of pension relief from high earners
It is proposed to restrict the tax relief for pension contributions available to individuals whose income is £150,000 or more. The relief will be phased out for those earning more than £150,000 so that one pound of relief will be withdrawn for every one pound of income above £150,000.
Termination payments
The proposal introduces a cap on the level of genuine redundancy payment that an employee may receive tax-free. The proposed cap is £50,000 and therefore is expected to only affect higher paid individuals.
International Business Companies (IBC)
As part of the commitment made under the EU Code of Conduct on Business Taxation Jersey agreed to remove the IBC tax status. It was agreed that IBCs which existed at 31 December 2005 could be grandfathered until 31 December 2011. It is proposed that the law which sets out the rules for the taxation of IBCs should be repealed with effect from 1 January 2012.
Definition of “relevant dividend”
The repeal of the deemed distribution regime has created a potential opportunity for taxpayers to avoid tax properly due in relation to the final year of the deemed distribution regime. It is proposed that the definition of “relevant dividend” is altered to prevent this avoidance opportunity arising. In addition it is proposed to amend the transitional rules applying to Income Tax (Amendment No.38) (Jersey) Law 201- to prevent double taxation of profits arising up to and including 31 December 2011 which are subject to the deemed distribution rules.
Incorporated Limited Partnerships (ILP) and Separate Limited Partnerships (SLP): taxation of property income
There is an amendment proposed to the Income Tax legislation regarding the taxation of Jersey property development profits recognised by ILPs and SLPs. The purpose is to ensure such profits are treated in the same way as those within a limited partnership (i.e. the profits are taxed at the level of the partners).
Administrative changes
Two administrative changes are proposed to the pension rules. The first will provide a degree of flexibility for taxpayers to access the funds held in very small occupational pension funds. The second amendment introduces a statutory definition of “serious ill health”. This is an important definition as it dictates the situation in which an individual can access their pension fund in a tax-fee lump sum.
There is also an administrative change to allow the Social Security Department to withhold ITIS on payments of Insolvency Benefits.
Goods and Services Tax Proposals
International Services Entities (ISE) fees
Based on the outcome of the recent consultation, it is proposed to keep the ISE regime simple. Further research is required into some aspects of the regime but it is proposed in this Budget to increase the fee paid by banks in line with the increase in GST. From 2012 the fee payable by a bank electing to be an ISE will increase from £30,000 to £50,000 per year for each registration.
Treatment of fees charged by States provided nursery schools
The treatment of States of Jersey nursery provisions will be amended to make them exempt under the GST legislation, so that the treatment is in line with that of private nurseries.
The definition of “aircraft”
The purpose of this amendment is to move away from ‘weight limit’ to ‘usage’ in line with the UK and the EU. With effect from 1 January 2011 the definition of the term aircraft was changed in the UK’s VAT law so that it was consistent with EU law. The new definition is focussed on usage of the aircraft rather than the weight of the aircraft. A similar change is proposed to the definition of “aircraft” contained in the GST law.
Impôts Duty Proposals and Stamp Duty
Increase the duty on alcohol and tobacco duties by 5% and 10% respectively representing:
- 50 pence on a litre of spirits;
- 6 pence on a bottle of wine;
- 1 pence on a pint of ordinary beer; and
- 35 pence on a packet of 20 cigarettes.
Increase all rates of Vehicle Emissions Duty by 5%.
Increase Stamp Duty (and Land Transaction Tax) court fees to be more aligned with costs.
- Recommendation
It is recommended that the Minister for Treasury and Resources approve 2012 Budget proposition, the draft 2012 Budget Statement and the Decision Summary and that the documents be lodged au Greffe so as to allow the 2012 Budget proposition to be debated by the States at the sitting of 8 November 2011.
- Reason for Decision
To enable the 2012 Budget proposition, the draft 2012 Budget Statement and the Decision Summary to be lodged ‘au Greffe’ with a request for debate in the States sitting on 8 November 2011.
- Resource Implications
Manpower implications
The proposals within the draft 2012 Budget Statement will be implemented without any increase to current approved manpower levels.
Financial implications
The Budget proposals are neutral and taken as a whole will deliver income of £575 million in accordance with the 2012 Business Plan.
Report author : Manager, Tax Policy | Document date : 21.09.11 |
Quality Assurance / Review : Director of Tax Policy | File name and path: l:\treasury\sections\corporate finance\ministerial decisions\dss, wrs and sds\2011-0123 - 2012 budget proposition and draft 2012 budget statement - wm\wr - 2012 budget proposition and draft 2012 budget statement - wm.doc |
MD sponsor : Director of Tax Policy |
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