One of the main headline-grabbing stories from this week’s budget was the news that the personal allowance will rise to £9,205 from April 2013, a bigger jump than expected, and not far off the coalition’s end goal of £10,000. As long as your annual income is below £100,000, that’s how much you’ll be able to earn before you start paying income tax.
From 6 April this year, the allowance rises from £7,475 to £8,105. However, also from April 2013, the income-tax threshold for the 40% tax band will be cut from £42,475 to £41,450, dragging another 300,000 people into the higher-rate tax band.
• At the other end of the income scale, the top rate of income tax for those earning over £150,000 a year will be cut from 50p to 45p in the pound from April 2013. George Osborne justified the move by arguing that the 50p rate encouraged too much tax avoidance.
• There was a nod to the LibDem idea of a ‘mansion tax’ in the form of a brand new stamp duty land tax rate. Properties worth over £2m will now incur stamp duty of 7%. To prevent wealthy individuals avoiding stamp duty, houses worth more than £2m that are bought through companies will now face a stamp duty land tax rate of 15%.
Capital gains tax will now also be chargeable on profits made by overseas firms that own and then sell houses in Britain. On top of that there will be an overall cap on the amount of tax relief (from various sources, including enterprise investment schemes) that an individual can claim in any one year. The maximum annual relief is the largest of 25% of your income, or £50,000.
• Plans to cut off child benefit to house- holds where a parent earns over £42,475 have been scrapped. Now the cut-off point will be £50,000, at which point the benefit will start to be tapered off to prevent any sudden drop in household income. Only households with an individual earning £60,000 and above will lose it altogether.
• So you know where all your money is going, taxpayers will start receiving a ‘personal tax statement’ each year that demonstrates how much tax and national insurance they’ve paid and what this money has been spent on.
• Tax relief on pension contributions remained untouched, despite being seen as a target by many. But there were some significant changes to state pensions. The state pension age is currently scheduled to rise to 67, for both sexes, by 2026.
But in summer, we’ll hear details of an ‘automatic review’ process, which seems likely to peg the state pension age to life expectancy. Age-related income tax allowances are being scrapped for new pensioners from April 2013. Allowances for existing pensioners will be frozen.
• Alcohol duty went up by 2% above inflation as planned, while tax on tobacco products went up by 5% above inflation – that’s 37p on a packet of cigarettes. Lastly, there were no changes to planned duty increases on fuel.