Alistair Darling delivered his final budget before the general election today (24th March 2010).
The following is a brief summary of our interpretation of the key points raised and is provided for information purposes only.
Despite the Chancellor confirming that borrowing for 2009/10 is projected to be some £11 billion lower than expected, the overall debt and continued need to borrow over the next four years means there was always going to be very little in the way of 'giveaways' in this Budget Report.
The Chancellor stressed the successful measures taken to 'secure the recovery', such as the car scrappage scheme increasing sales by 30% and the one-off tax on Banking Bonuses, introduced in the Pre-Budget Report, reaping some £2 billion in tax revenue. However, there is a long way to go to reduce the country's debt and many of the changes announced today are minor alterations to the existing tax and financial system. In a theme which has been constant in recent years, further anti-avoidance legislation was also proposed.
Growth forecast for 2010 1-1.5%
The Chancellor today forecast growth of 1 - 1.5% for this year, he has however reduced his growth forecast for 2011 to between 3% and 3.5%, in line with predictions from the City. (The Chancellor had previously predicted that growth would hit at least 3.5% next year.) The Chancellor also confirmed that the inflation target remains unchanged at 2%.
Income Tax and Allowances and National Insurance
As announced in the Pre-Budget Report for the tax year 2010/11 all tax allowances and thresholds will be the same as the current year. In the Pre Budget Report Darling increased National Insurance by a further 0.5 per cent from 2011, this was in addition to the 0.5% increase previously announced. Those earning less than £20,000 will be exempt from the rise. Full details of all tax rates and allowances are available at:
http://www.hm-treasury.gov.uk/d/budget2010_pressnotice2.pdf
Isa Limits to rise annually with inflation
From 6 April 2011 and on an annual basis thereafter, ISA limits will be increased in line with the Retail Prices Index (RPI).
The annual increase will be based on the RPI figure for the September before the start of the tax year and, if the RPI is negative, the limits would be unchanged. The new annual limits will be rounded to the nearest multiple of 120 – this is to ensure increases to monthly savings ISAs are divisible by 12.
The cash ISA limit will remain at half the value of the stocks and shares ISA limit after indexation. This new approach will therefore allow the benefits of ISAs to be increased in real terms in future years. The ISA allowance for the 2010/11 tax year is £10,200.
Stamp Duty Threshold Doubled but rate increased on homes over £1m
First time buyers can claim relief from Stamp Duty Land Tax (SDLT) on residential transactions up to £250,000 between 25 March 2010 and 25 March 2012 but the rate for properties worth more than £1m is to increase to 5 per cent. (The move comes after a stamp duty holiday – which increased the threshold from £125,000 to £175,000 – came to an end in January.)
Inheritance Tax – Threshold frozen for four years
The Finance Act 2007 previously stated that the IHT allowance would rise to £350,000 for transfers made (or deemed to be made) on or after 6 April 2010. The 2009 Pre-Budget Report announced that legislation will be introduced in Finance Bill 2010 to freeze the limit of the inheritance tax (IHT) nil rate band for the tax year 2010-11 at the current level of £325,000. This will now be extended to cover the tax years 2011-12 to 2014-15.
Capital Gains Tax
The rate of tax for mainstream CGT remains at 18% and the annual exempt amount of £10,100 remains unchanged.
Pensions – Default retirement age may be scrapped
Alistair Darling has promised to review the default retirement age by either scrapping it or offering greater flexibility to those over 65. While many keep working beyond the state retirement age the default retirement age allows employers to end a worker's employment when they reach 65. However, many older people need to work beyond 65 due to insufficient pension funds.
Pensions - The implementation of the restriction of pensions tax relief (BN33)
Legislation will be introduced in Finance Bill 2010 to recover tax relief above the basic rate on pension contributions made by or on behalf of individuals with high income. For people with annual income of between £150,000 (inclusive of employer contribution for those with incomes of £130,000 or more) and £180,000, tax relief on pension contributions (including the value of employer contributions for those in employment) will reduce gradually from the individual's marginal rate to the basic rate as income increases. Where income is £180,000 or over the measure restricts tax relief on pension contributions to the basic rate. The restriction of pensions tax relief will have effect on and after 6 April 2011.
Details are available at: http://www.hmrc.gov.uk/budget2010/bn33.pdf
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