Described by some as a ‘budget for millions’ and others as a ‘budget for millionaires’, this year’s budget is certainly a political gamble for the Coalition Government. However, was there really anything announced that we didn’t already know about?
As always with budgets, the devil is in the detail and we suspect, as time goes by, more and more will be discovered about the specific points within the budget report. For the time being here is a brief run-down of the key points within the Chancellor’s Budget.
ISAs were not specifically covered in this year’s budget; however, the Chancellor has announced previously that the ISA allowance will increase in line with inflation. Currently at £10,680, as of the 6th April 2012, your individual ISA allowance will be £11,280.
The chancellor announced plans to phase out age related tax allowances, which will be frozen at 2012/13 levels of £10,500 for those born between 6 April 1938 and 5 April 1948, and £10,660 for those born before 6 April 1938 as of 6 April 2013.
A single-tier state pension of £140 per week is to be introduced and State pension age is to be automatically reviewed to ensure it keeps up with growing longevity.
The amount of income you can earn before you start paying tax – the personal allowance – will rise by £1,100 from £8,105 in April 2012 to £9,205 in April 2013, which is good news for many middle-low income workers. The measure will mean an extra income of £220 for 24 million workers.
The increase in personal allowance is not the only significant change to personal taxes. It is estimated that an additional 300,000 people will have to pay income tax at the higher rate of 40%, in order to help fund the increase in personal allowance.
From 2013 higher rate tax payers (those who pay 40%) will earn £41,450 before they pay income tax at 40%. Currently, the level is £42,475.
In a bid to increase transparency, HMRC will be sending tax payers annual statements to inform them of not only how much tax they are paying, but where that tax is being spent.
The controversial 50p tax rate for those earning £150,000 per year, or more, will be reduced to 45p from April 2013. Despite raising £1bn in additional revenues, the Chancellor is hoping that by reducing the rate, it will encourage less avoidance.
The Government will launch the long-awaited, detailed, consultation on integrating the income tax with National Insurance.
In other measures, a new 7% stamp duty tax on properties valued at over £2m was implemented at midnight on the 22nd March. The Chancellor has also signaled a clamp-down on tax avoidance and evasion, viewing it as something ‘I view as morally repugnant’. The result will be a general anti-avoidance tax rule in next year's Finance Bill. A tax avoidance cap will be introduced so anyone claiming £50,000 or more of tax relief in a year will have relief capped at 25%of their income.
VCTs & EISs
The rule changes announced were very much in line with previously published draft legislation. The only significant change is that the annual amount a company can raise from EISs & VCTs is proposed to be increased from £2m to £5m, rather than £10m.
Cap on unlimited reliefs
The Government will, from 6 April 2013, cap tax reliefs at 25% of income (or £50,000, whichever is greater). We understand that VCTs, EISs and pensions will be outside this cap. Investors in BPRA schemes are likely to be affected from 2013/14 (i.e. they may be restricted as to the amounts they can subscribe).
A £3,600 annual limit on payments to qualifying policies, including maximum investment plans (MIPs), has been introduced in the Budget.
A qualifying policy is a life insurance policy whose terms meet certain rules on policy terms, regularity, premiums paid and the minimum sum assured. MIPs are qualifying policies and are often marketed as an alternative to pensions saving for those who have already reached the £50,000 a year limit for contributions.
According to Budget documents the government will limit the premiums that can be paid into qualifying policies issued from 6 April 2013 to £3,600 a year.
Income tax relief will continue to apply to benefits from qualifying policies issued from 21 March 2012 and before 6 April 2013, but only in respect of the premiums paid in this period and premiums paid up to the limit thereafter.
The government will consult on the implementation of these changes during 2012.
Documents published alongside the Budget seek to restrict the use of offshore bonds which are structured so that any gain made across the whole bond arises in only one segment or policy.
Currently these bonds allow withdrawals from all the other segments, where the gains do not arise, without fear of a chargeable event arising.
The change will ensure that all policies are treated as one policy in the event of a chargeable withdrawal. This effectively attributes a share of the gain to all the segments.
Contributions paid to spouses or family members
The government will legislate to ensure that arrangements where an employer pays a pension contribution into a registered pension scheme for an employee's spouse or family member as part of their employee's flexible remuneration package cannot be used to obtain tax and National Insurance advantages for the employee or the employer.
Corporation tax will fall to 24% in April, which is 1% lower than originally planned. There will be additional 1% point cuts in the next two years, hitting 22 per cent 2014. The rate has previously been cut to 26% from 28%.
In a move that will be popular with many, Banks won't benefit from the cut. Instead, the full rate of the bank Levy will increase to 0.105% from 1 January 2013 to cancel out the cut to corporation tax.
UK economic growth for 2012 has been revised up, from 0.7% previously to 0.8%. The Office for Budget Responsibility (OBR) has also stated the economy will have avoided a technical recession with growth predicted for the first quarter of 2012.
It appears that public finances have improved and borrowing this year is expected to be £126bn, down from November’s forecast of £127bn. In total, borrowing is £11bn less than forecast and the Chancellor has ignored the temptation to spend this money, and will instead use it to reduce the UK’s national debt
The UK is still on course to eliminate structural current deficit by 2016/17.
The limit at which child benefit will be scrapped for families has been increased to £50,000 and would fall 1% for every £100 earned over £50,000, until an upper limit of £60,000.