Moffatt Financial Budget Summary

You will all be well aware the Budget was announced yesterday. This blog is designed as a summary of the main points. You should be aware that some of the proposed changes may not come into law. It was a budget of stealth taxes and nothing more than we have come to expect from this Government. Not a great deal in the way of unexpected changes as apparently there is an election due in May!!!

Inheritance Tax: Nil rate band

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.
The measure will have effect for chargeable IHT events made on or after 6 April 2010 and before 6 April 2015.

Capital Gains Tax: Increase in lifetime limit on entrepreneurs’ relief

The amount of an individual’s gains that can qualify for entrepreneur’s relief is currently subject to a lifetime limit of £1 million. The Finance Bill 2010 will include provision to increase the limit to £2 million. The change will be effective from 6th April 2010.

Income Tax and National Insurance Rates

The main rates of income tax for 2010-11 will remain at 20 per cent for basic rate taxpayers and 40 per cent for higher-rate taxpayers. As announced at Budget 2009, a 50 per cent rate will apply on non dividend income exceeding £150,000 and 42.5% on dividend income exceeding this amount.
As announced in the 2009 PBR, National Insurance Contributions will increase by a further 0.5 % from April 2011 (in addition to the 0.5% announced in the 2008 PBR). This means that all employees earning roughly over £40,000 face an uncapped 2% NIC charge on all their earnings. Employers, who already faced an increase from 12.8% to 13.3% in 2011, will see a further increase to 13.8%.
Tax allowances and thresholds will be frozen in 2010-11.

Stamp Duty on Property Purchase

The stamp duty threshold is raised to £250,000 for 1st time buyers. The stamp duty rate increases to 5% for property purchases over £1 million.

Indexing ISA limits from 2011

From 6 April 2011 and over the course of the next Parliament, the annual ISA limits will increase annually in line with RPI. The new annual limits will be rounded to the nearest multiple of 120 so that individuals who save monthly will be able to calculate their monthly savings more easily.
The new limits will be calculated by reference to the RPI for the September before the start of the tax year, and HM Revenue & Customs will announce the new limits as soon as possible after the RPI figure is published, and at least four months in advance of the start of the new tax year in which they will apply.

Pensions: Restriction of Pension Tax relief

From April 2011, tax relief on contributions into registered pension schemes will be restricted to 20% for individuals with gross income of £180,000 and over.

For those with gross incomes between £150,000 and £180,000 higher rate relief will be tapered away. “Gross income” will include the value of any pension benefits funded by employer contributions.

To provide more certainty to individuals, the government is proposing a pre-tax income floor of £130,000 where:
- Below that floor, individuals do not have to establish the value of their employer’s contributions and continue to receive tax relief at their marginal rate
- Above that floor, the value of the employer’s contributions will be added to the value of the individuals’ pre-tax income. If the total is £150,000 or more, then the tax relief restrictions will apply; if not, then full relief will continue
Anti Forestalling measures
There are no changes to the anti forestalling measures which have already become law and are aimed at preventing individuals seeking to forestall the 2011 change, by increasing their pension saving in excess of their normal, regular pattern of contributions.
Lifetime Allowance and Annual Allowance
As was announced in the 2008 Pre-Budget report, the Lifetime Allowance of £1.8m and Annual Allowance of £255,000 will be frozen up until 2015-16

Winter Fuel Payments

The Government will guarantee payments for another year – this will be at least £250 for pensioners (£400 for those over-80′s).