Budget Summary - 2012

Headline Items

Firstly, some the headline items from yesterday’s budget.

With effect from April 2013, the 50p top rate of tax will be cut to 45p.

The personal income tax allowance will be raised to £9,205 from April 2013. This is a move that the government says will make 24 million people £220 a year better off. However, 300,000 more people will be drawn into paying higher rate tax - 40% tax band - from 2013/14 as the threshold is to be reduced from £42,475 to £41,450.

The Office for Budget Responsibility (OBR) has revised the UK growth forecast for 2012 to 0.8% - from 0.7% - a very small change but in the right direction and hopefully will dispel some of the rumours about a double dip recession.  

The growth forecast for 2013 is 2%, for 2014 2.7%, and in each of the two years after that 3%.

Inflation in the UK is forecast to fall from 2.8% this year to 1.9% next year. 

There are no changes to the current Capital Gains and Inheritance Tax thresholds, although there is a reduction to 36%, on the top rate of Inheritance Tax payable for estates which leave 10% of their value to charity.

Click here to read our budget summary in full on our website.   

Tax raid on pensioners?

Pensioners will no longer receive a larger personal income tax allowance than people of working age.

At present, those over the age of 65 can earn £10,500 before tax, while those over 75 can earn 10,660. However, those age-related allowances will be removed for new pensioners from April 2013.

Allowances for those already of pension age will be frozen until the personal allowance for the rest of the population catches up.

George Osborne said "no pensioner will lose in cash terms", but HM Revenue and Customs have estimated that in 2013-14 more than 4 million people could be worse off in real terms due to inflation.  

Universal State Pension

It was announced yesterday that there will be a single tier, non-means tested state pension, which will be based on contributions.

This is expected to be around £140 per week but more details will be revealed about this later in the spring.

As previously announced, the current Basic State Pension will increase by £5.30 per week on 6 April 2012.

With regards to the Universal State Pension, the Chancellor stated that this should not cost any more than the present system.

Importantly, it should also reduce the perceived "disincentive to save". This is due to private pension’s income affecting state pension credits and this should disappear. At present, pension income could mean a loss of some pension credits.

Also, many studies have shown that many pensioners do not claim all of the benefits they are entitled too because the process was found to be a too complex procedure. 

State Pension Age and Longevity

The link between State Pension Age and longevity has been confirmed, which means that in future there will be an automatic review of the state pension age.

The State Pension Age is already scheduled to increase to age 67 by 2026 for both men and women. This new link will mean that the state pension age could keep increasing if longevity increases.

This automatic review of state pension age will make retirement planning a little more complicated, as it means that there will be no definite State Pension Age to prepare for. It will effectively become a moving goalpost.

This does highlight the fact that the younger generation will be working for longer than those currently retiring and this will become the norm. The only way for an individual to avoid working until their late 60s or even early 70s is to properly plan and prepare for their own retirement and not rely on the State Pension. This gives an individual control of the date when they want to retire. 

Pension Tax Relief

What has been announced regarding pension tax relief? Nothing!

A limit on uncapped income tax relief will be introduced for anyone claiming more than £50,000 of relief. This limit will be set at 25% of income. However, this DOES NOT affect pension’s tax relief. After a great deal of speculation, there has been no change to either the operation of pension’s tax relief or to the Annual Allowance.

Mansion tax by another name?

From midnight on Budget day, a new stamp duty level of 7% for homes worth more than £2m was announced. This is up from 5%.

As has been detailed in great depth by the media this week, any such homes bought through companies will now pay 15%.

There is also to be further consultation on the introduction of "a large annual charge" on properties already held in so-called "corporate envelopes". 

And finally...

There is always one headline grabbing item in the budget and beyond the freezing of the age related income tax allowance, this year is no exception.

Widely reported in today’s papers is the "takeaway tax". This is the inclusion of VAT at the 20% rate of food which is "warmer than the ambient temperature". Not only can you expect to see the price of your supermarket rotisserie chicken to rise but also those trips to Greggs the Bakers will also become more expensive.

There is - sadly - no change to existing plans on fuel duty - a 3.02p per litre increase will go ahead on 1st August as reported previously. Vehicle excise duty is set to rise by inflation.

Duty on all tobacco products is to rise by 5% above inflation from 1800 GMT on Budget day - the equivalent of 37p on a packet of cigarettes. There is no change to existing plans on alcohol duty and this means that the duty will rise 2% above the rate of inflation, putting more than 5p on the price of a pint.

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