Wednesday 21 March 2012

Budget 2012 - how will it affect individuals?

How will today's Budget affect you?.

Today's Budget was largely more of the same: cut business taxes to try and stimulate growth, put a brake on spending, grab some more tax in places and try to keep the majority of voters as happy (or maybe the least unhappy) as possible in difficult circumstances.


Income tax announcements look generally good news, except the increased age allowance will effectively be scrapped for those hitting 65 from 2013 and the allowances won't rise any further for those already enjoying them. There'll be a lot of noise about the top 50% rate falling to 45% from April 2013, but in my view it's pretty inconsequential. Of more concern for many will be the planned changes to child tax credits, which will see families on even modest incomes losing several hundred pounds a year.


The flat state pension of around £140 per week looks set to go ahead in 2016, but still no news of how those with decent existing SERPS/S2P pots (giving them a pension above £140) will be affected.


Let's take a look at the main changes affecting individuals (changes affecting business to follow).


Income Tax


As previously announced, the personal allowance will increase by £630 to £8,105 from 6 April 2012. The threshold for higher rate tax will fall from £35,000 to £34,370, meaning the income limit for 40% tax is unchanged at £42,475 (for those with the normal personal allowance). This means basic and most rate taxpayers should be around £126 a year better off.
















Annual IncomeIncome Tax 2011/12Income Tax 2012/13Saving
£25,000£3,505£3,379£126
£50,000£10,010£9,884£126
Change in income tax bill from 6 April 2012.

The 50% tax rate for those earning above £150,000, introduced in April 2010, will fall to 45% from April 2013.


The personal allowance is still set to rise to £9,205 from April 2013 but the higher rate tax threshold will fall by £2,125 to £32,245, reducing the benefit for those on higher incomes.


The higher 'age-related' personal allowance given to those aged 65 and over will increase to £10,500 (£10,660 for those 75 and over) from April 2012, but remain at this level thereafter with no annual increases. It will also effectively be scrapped for those turning 65 after 5 April 2013, with these individuals receiving just the standard personal allowance, due to be £9,205.


National Insurance


Largely unchanged except for a small increase in the threshold when NICs become due.
















Annual IncomeNI 2011/12NI 2012/13Change
£25,000£2,133£2,089£44
£50,000£4,381£4,337£44
Change in employee Class 1 NIC from 6 April 2012.

VAT


No change to the rate, but from 1 November 2011 the limit for VAT-free imports from outside the EU will fall from £18 to £15 - which might have a small impact on some of the Jersey/Guernsey based internet shopping sites.


Capital Gains Tax


Rates and annual allowance will remain unchanged at 18%, 28% and £10,600 respectively.


Inheritance tax


No change to the rate or nil rate band, but from 6 April 2012 the rate will fall from 40% to 36% where 10% or more of a net estate is left to charity.


Flat state pension


The chancellor confirmed his intention to introduce a flat state pension of around £140 a week, probably in 2016. However, still no detail of how those with existing SERPS/S2P benefits in excess of this will be treated.


In light of this, the ability to contract out of S2P using a money purchase pension will be scrapped from 6 April 2012, but it will remain for final salary schemes, for now... (the latter will be a challenge, as scrapping would mean employees effectively having to pay the 1.4% in National Insurance that is currently waived when they contract out via a final salary pension scheme).


Child benefit


Will continue to remain frozen at £20.30 per week for the eldest child and £13.40 for each other child until April 2014.


If a parent has income exceeding £50,000 they will face a charge equal to 1% of the total child benefit received per £100 of income between £50,000 and £60,000, i.e. a parent earning £60,000 will end up receiving no child benefit. Where both parents earn above £50,000, the highest earner is subject to this charge.


Child tax credit


As per previous announcements, child tax credits will continue to increase from 6 April 2012 for families with incomes of around £25,000 or less, but fall for everyone else.














Annual Household IncomeNI 2011/12 Child Tax CreditNI 2012/13 Child Tax CreditChange
£25,000£2,145£2,560+£415
£35,000£545£0-£545

See full details in my previous article.


Fuel


The delayed January 2012 3.02p per litre rise in fuel duty will happen this August, while the planned August inflationary increase will be scrapped this year.


Alcohol


Alcohol duty rates will increase by 2% above inflation (a 5% rise - based on actual RPI 6 months before Budget and estimated RPI 6 months after) on 28 March 2012.












Beer (pint)Wine (bottle)Champagne (bottle)Spirits (bottle)
Typical Change+3p+11p+14p+41p
Typical increase in price from 28 March 2012.

Cigarettes


From 6pm tonight tobacco duty will rise by 5% above inflation, typically increasing the cost of a packet of 20 cigarettes by 37p.


Vehicle Duty


To increase by inflation for vehicles in VED band D an above, adding between £5 and £15 to the cost of a standard annual tax disc.


Company car fuel benefit charge


If you receive a company car and free fuel you'll pay some tax on the fuel benefit. The £18,800 multiplier figure currently used to calculate this will increase to £20,200 from 6 April 2012. What difference will it make? Probably an extra £100 of tax per year for basic rate taxpayers and £200 for higher rate based on a typical 2 litre diesel car.


Air Passenger Duty


Increase between £1 and £14 depending on distance and class of travel.


EIS/VCT


Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) will benefit from being able to invest in larger companies (changing from maximum of 50 employees and less than £7m of gross assets before investment to 250 employees and £15m of gross assets) and make bigger investments per company (changing from £2 million to £5 million) from 6 April 2012.


The annual amount individuals can invest into an EIS will double to £1 million from 6 April 2012, while the current £500 minimum will be scrapped.


The £1 million limit on investment by a VCT in a single company will be lifted on 1 April 2012.


Stamp duty on property purchases


A new 7% rate will be introduced on 22 March 2012 for residential property purchases of £2 million and above - rising to 15% when purchased via companies in order to try and avoid tax.


Qualifying policies e.g. endowments


From April 2013 the maximum annual contribution for new policies (or existing where term is extended) will be limited to £3,600.


Overall limit for uncapped income tax relief


An overall limit the greater of £50,000 and 25% of income will apply to income tax reliefs that are not subject to an annual limit - this could include charitable donations, loss relief and qualifying loan interest.

Read this article at http://www.candidmoney.com/articles/article252.aspx

Sunday 18 March 2012

Budget of hot air?

Will Wednesday's 2012 Budget be full of anything but hot air?.

I doubt anyone is enjoying the rumours and all the LibDem kite flying that is preceding next week’s event. Did Vince convince Nick to press Dave to introduce his mansion tax in return for dropping the 50p top rate of income tax? Did Nick dream up his tycoon tax all by himself. Is George listening to the siren voices that want to see the end of higher rate relief on pension contributions? Is there a way to resolve the problems surrounding the withdrawal of child benefit from higher rate taxpayers?


My prediction is that Mr Osborne will produce some eye catching headlines, but that there will really be very little in the Budget. Those of us dreaming about all income being taxed at the same rate, and about the phased abolition of all reliefs - just think, no more ISAs, no more pensions – can dream on. The current policy which has all party support is to screw the prudent to spare the profligate. Expect no change.


Confusion heaped upon confusion


We have had regulators for nearly 25 years. All of them have said that consumers are confused.


A premium bond is a bet with The Treasury. An investment bond is a single premium life policy, which may be written offshore or onshore. A distribution bond is an investment bond where your money is in a particular type of fund. A Bank or Building Society bond is – usually – a deposit account with a fixed term. An income bond is the same as a deposit account, except that it does not have a fixed term and is offered by National Savings. A plain bond is an iou issued by a sovereign country. It is also an iou issued by a corporate entity. A greek bond is a turkey. The tax treatments of these vehicles are as different as the vehicles themselves.


I could go on. My word is my bond, and my word is that the regulator could help by forcing everyone to sort out this messy nomenclature.

Read this article at http://www.candidmoney.com/articles/article251.aspx

Friday 16 March 2012

Will polticians improve NEST?

The new NEST workplace pension needs to allow transfers in and out of the scheme if it's to be effective. But will the politicians get their heads around this and make the necessary changes?.

Justin is back, so I’ve come back too. And, just this once, I have something good to say about politicians. Not all politicians, of course.


Cast your mind back a couple of years. Alastair Darling was at No 11 when his boffins came up with NEST, the new pension scheme that everyone is going to be enrolled in, unless they are already in an ‘exempt’ scheme, or decide to opt out. I wrote to the Chancellor:


“I am however especially concerned about the decision not to allow transfers in or out of NEST. This seems to run counter to everything that has been done to create flexibility for savers. I guess any employer running a Stakeholder will simply switch to NEST. This will leave the members with mostly trivial pension pots charged at 1.5% or 1% of the fund value annually………I think the Government has a duty to the people in the original Stakeholder target market. It would be fairly easy to allow anyone enrolled in NEST to transfer in up to say £20,000 from a Stakeholder or any other personal pension.


It would be equally easy to recognise that circumstances change, and that NEST members may subsequently become much better off and want to manage their growing pension savings in, for example, a SIPP.


Transfers in would help the NEST finances in the early years. Transfers out would not happen for some time, and their impact on NEST finances would then be negligible.


Will you ask NEST to reconsider this part of the rules?”


Needless to say, I got an anodyne reply from some junior assistant numbtie to the effect that they knew what they were doing.


A new report from the Work and Pensions Select Committee says…. the ban on transfers in will stop savers consolidating small pots in Nest, which it says is the “obvious” vehicle for aggregating small pots. Hooray for the Work & Pensions Select Committee.

Read this article at http://www.candidmoney.com/articles/article250.aspx