The Budget - 21 March 2012

George Osborne delivered his third budget on 21 March 2011, the third budget of the Conservative / Liberal Democrat coalition government.  Many of the announcements had been widely leaked in the days before the budget leaving few surprises for the day.

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 one of the 'Big Four' accountancy firms' websties, or the Financial Times. Alternatively you could try the official budget pages at HM Revenue and Customs or the government's summary on the DirectGov website.

The following tax changes have been announced as starting in April 2012 or later.  Most of these were announced in earlier budgets, but the information is presented here as they affect the tax system for 2012-13.

Income Tax

National Insurance

Savings

Corporation Tax

Capital Allowances

Capital Gains Tax

Inheritance Tax

Stamp Duty

VAT

Child Benefit

Income Tax

The following income tax changes are effective from April 2012:

• The personal allowance for tax free income will increase by £630 to £8,105.  This will increase further to £9,205 from April 2013.
• The basic rate band (the amount of income taxed at the basic rate of tax [20%]) will reduce by £530 to £34,370..
• The personal allowance will continue to be reduced for taxpayers with income exceeding £100,000.  The allowance will reduce by £1 for every £2 of income over £100,000.  This has the effect of creating a 60% tax band between £100,000 and £116,210.
• From April 2013 the top rate of tax will reduce from 50% to 45% for taxable income exceeding £150,000.
• Reliefs against income tax will now be the lower of £50,000 and 25% of income.
• Age related allowances for people aged over 65 will not be increased.

National Insurance

Ntional insurance remains unchanged.

Savings

The annual limit on investing in ISAs (Individual Savings Accounts) is now adjusted annually in line with the Retail Prices Index (RPI) so no announcement was needed in the budget.  However, in October 2011 HM Treasury announced the limits for cash ISAs for 2012-13 would be increased from £5,430 to £5,640.  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

Having announced a series of changes to the main rate of Corporation Tax (paid by companies with profits exceeding £1.5m) in last year's budget, George Osborne amended these.  From April 2012 the rate will be 24%, reducing to 23% in April 2013 and 22% in April 2014.

The Corporation Tax rate for small companies (those with profits below £300,000) reduced to 20% in April 2011 and this is not expected to change in the near future.

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 were no significant announcements in the budget Capital Allowances.  The Annual Investment Allowance for the purchase of certain capital items reduces from £100,000 to £25,000 per annum from April 2012.  This change was announced in the 2011 budget.

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

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 remains unchanged 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, to £5m in the June 2010 budget, and to £10m in the 2011 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

No significant announcements were made relating to Inheritance Tax.

Stamp Duty Land Tax

Stamp Duty Land Tax was increased from 5% to 7% on the purchase of property exceeding £2m, effective from 22 March 2012.  

In a move designed to stop people avoiding stamp duty by purchasing property through a company, such purchases are now subject to a stamp duty land tax rate of 15%.

VAT

There was no change to VAT rates.

VAT will now be charged at the standard rate (currently 20%) on all hot take away food. 

Child Benefit

It was announced in the 2011 budget that child benefit would be withdrawn from households where there was one or more higher rate tax payers. This was changed in the 2012 budget so that child benefit is gradually withdrawn from households where there is one or more people earning over £50,000.  1% of the child benefit will be withdrawn for every £100 the income exceeds £50,000, so that no child benefit is paid if income exceeds £60,000.

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