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The Budget - 23 March 2011


If you are looking for information about earlier budgets please use these links:

June 2010 Budget, March 2010 Budget

2009 budget, 2008 budget, 2007 budget

George Osborne delivered his second budget on 23 March 2011, the second budget of the Conservative / Liberal Democrat coalition government.  The "emergency budget" of June 2010 and earlier ones from the previous government had already announced spending cuts and tax rises to be implements from April 2011, and this enabled the Chancellor to deliver a budget with few surprises.

This report covers the main taxes and their effect on most people.  It is not intended to be a complete definitive guide to the budget.  All figures are approximate.  If you are looking for a definitive guide then you should try The Financial Times or one of the 'Big Four' accountancy firms. Alternatively you could try the official budget pages at HM Revenue and Customs or the government's summary on the DirectGov website.

There were promises to consult on the simplification of the tax system, particularly on an attempt to amalgamate income tax and national insurance.  Time will tell whether this will be just another consultation leading nowhere or a long overdue and much needed simplification.

The following tax changes have been announced as starting in April 2011 or later.  Most of these were announced in earlier budgets, but the information is presented here as they affect the tax system for 2011-12..

Income Tax

National Insurance

Savings

Corporation Tax

Capital Allowances

Capital Gains Tax

Inheritance Tax

Stamp Duty

VAT

State Pension



Income Tax


The following income tax changes are effective from April 2011:


National Insurance


The national insurance changes announced by the previous government were confirmed and are effective from April 2011:

To reduce the effect of the increases in national insurance (listed above) the following changes were announced in the June 2010 budget, and these are also effective from April 2011:

The intention is that the national insurance changes should be neutral for those earning less than £20,000 per annum,.


Savings


The annual limit on investing in ISAs (Individual Savings Accounts) is now adjusted annually in line with the Retail Prices Index (RPI).  The limit of £5,100 for cash ISAs increases for 2011-12 by £240 to £5,430.  No tax is payable on interest earned in these accounts as long as the rules associated with the account are followed.  The amounts for non Cash ISAs are double these figures.


Corporation Tax


The main rate of Corporation tax (paid by companies with profits exceeding £1.5m) which is currently 28% will reduce in April 2011 by 2%, and then by a further 1% each year until it reaches 23% in April 2014.

The Corporation Tax rate for small companies (those with profits below £300,000) will reduce by 1% in April 2011 to 20%.  This is a reversal of the previous government's promised increase to 22%.

Companies with profits between £300,000 and £1.5m will continue to pay corporatrion tax at a rate between the main rate and the small comapnies rate.


Capital Allowances


There was little change to the Capital Allowance system for most businesses.  The Annual Investment Allowance for the purchase of certain capital items remainded at the £100,000 figure set in the March 2010 budget.  This is planned to reduce to £25,000 in April 2012.

The writing down allowance on assets where the Annual Investment Allowance cannot be claimed, remains at 20%.

Small businesses will need to plan their capital expenditure so that major purchases are made before the end of March 2012.


Capital Gains Tax


The Capital Gains Tax rate for gains made by higher rate taxpayers on non business assets was increased from 18% to 28% from 23 June 2010 by the June 2010 budget.  This rate remains in force.

Entrepreneurs' relief was doubled so that the first £10 million of certain types of Capital Gain is taxed at a reduced rate of 10%.  (This was increased from £1m to £2m in the March 2010 budget, and then to £5m in the June 2010 budget).

Capital Gains on business assets not covered by entrepreneurs' relief, and gains made by individuals not paying higher rate tax will continue to be taxed at 18%.


Inheritance Tax


The Chancellor announced an incentive to leave money and assets to good causes in wills.  If 10% of an estate is left to charity then the inheritance tax rate will be reduced from 40% to 36%.  Otherwise the tax was left untouched.

This reduced inheritance tax rate is only beneficial to estates that would have left 10% to charity anyway.  A £1m estate donating 10% to charity will have a combined inheritance tax and charity donation bill of £343,000, compared with a tax bill of £270,000 for an estate that leaves nothing to charity.


Stamp Duty


There was no change to Stamp duty.  The temporary measure exempting first time buyers up to £250,000 comes to an end on 24 March 2012.


VAT


There was no change to VAT.  


State Pension


The way in which increases to the basic state pension are calculated is to be changed.  In future it will increase in line with the higher of:

The government plans to change the state pension to a flat rate pension of £140 per week for all, but this change is expected to take many years to come into force.  Full details of this are still being worked out.

Increases to the pension age will affect many of the current workforce.  You can calculate when you will reach the state retirement age using the government's 'State Pension Age Calculator'.

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