The main Budget headline was certainly grabbed by the “Granny Tax” which in many ways has eclipsed the increase to the Personal Allowance and the cut in the higher rate of tax from 50p to 45p.
The devil if of course always in the detail, look more closely, who were the winners and losers from today’s Budget? Read on to find out.
The increase in the Personal Allowance to £9,205 from April 2013 will take even more people out of the tax system, according to the Chancellor 24 million people earning below £100,000 a year will benefit.
Those people earning more than £150,000 will see their highest rate of tax drop from 50p to 45p from April 2013.
Whilst this might be seen as good news for high earners the Chancellor was keen to point out that other taxes will raise five times as much revenue as the 50p tax rate.
Future pensioners (in one way)
The plans for a flat rate State Pension will go ahead, whilst it will still be necessary to have made National Insurance contributions for a specified period, the flat rate, to be set at a minimum of £140 per week, will be seen as good news by many.
However from April 2013 retirees will not get the benefit of the age allowance, and will get the same Personal Allowance as everyone else, our calculations show that this will cost retirees just over £250 a year.
It was announced that the Corporation Tax rate will be reduced to 24% from next month with two further reductions taking the rate to 22% over the next couple of years. There was even a hint that it could be reduced further to the same 20% level as Income Tax; all good news for business.
The Chancellor reacted to criticism of his plans to remove family allowance where one parent was a higher rate tax payer by increasing the level of income to £50,000 before the benefit could be withdrawn.
The benefit will be reduced by 1% for every £100 over a parent’s income above £50,000, meaning that the whole benefit will be withdrawn if a parent earns over £60,000.
Whilst this represents an improvement, HMRC figures show that 1.2 million families will lose an average of £1,200 per year and it will still see the benefit withdrawn from some households where the total income is actually below others who will keep the benefit.
Although a cap on the overall amount of tax relief that can be claimed will be introduced (see below) no other changes to the maximum which can be contributed to pensions, higher rate tax relief or tax free lump sums were announced.
Pensioners & Future pensioners
The age related allowances for pensioners are to be frozen from April 2013 at 2012/13 levels until the Personal Allowance for those people aged under 65 catches up.
Age related allowances are higher than the Personal Allowance; £9,940 in the current tax year for someone aged over 65, compared to £7,475 for people aged below 65.
By freezing age related allowances and ultimately equalising them with the Personal Allowance pensioners will pay more tax than if the differential between the two had remained. Some early put the cost at over £3 billion per year.
Future retirees, from April 2013, will not qualify for the age related allowance at all and will continue with just the Personal Allowance, as mentioned earlier this will cost retirees over £250 per year in additional tax.
The benefit of the higher Personal Allowance will benefit ‘middle earners’ but they will be hit by a reduction in the basic rate limit, from £34,370 to £32,245 from April 2013, meaning that less income will be taxed at 20% and more at 40%.
The Chancellor announced that in future the State Pension age would be linked to life expectancy; this is likely to signal a rise in the State Pension age, meaning would be retirees will have to wait longer for their flat rate State Pension (see winners).
And of course future pensioners will not benefit from the age related allowance.
The banks will not benefit from the reductions in Corporation Tax with the Bank Levy to be increased to offset any gain there would otherwise have been.
Any hoped for cut in fuel duty or postponement of the 3p rise did not happen.
Vehicle excise duty will continue to rise in line with inflation.
Stamp Duty avoiders
If you were planning on avoiding Stamp Duty by buying your home in a company then think again. The Chancellor announced that Stamp Duty would be increased to 15% for companies buying residential property worth more than £2 million.
Furthermore Stamp Duty for residential property purchases made personally will rise to 7%.
The Chancellor announced a cap on the maximum tax relief claim which could be made of £50,000 or 25% of an individual’s income, whichever is greater.
The cost of tobacco will rise by 5% above inflation making a packet of 20 cigarettes 37 pence more expensive.
Are you a winner or loser from the budget?
Perhaps you are a pensioner unhappy with the changes to the age related allowances or a low paid worker happy with the rise in the Personal Allowance from April 2013.
However you are affected we’d love to hear from you, leave your comments below.