Questions Answered
Some major tax changes that had been announced in previous Budgets came into effect on 6 April 2010. From 6 April, income tax has been set at 50 per cent on earnings above £150,000. In addition, income tax allowances and bands have been frozen – meaning that everyone will pay more tax on their earnings if they receive a pay rise.
Following Budget 2010 we have provided answers to some of the most frequently asked questions we’ve received from clients.
Q: I’m a first time buyer – what help was announced to enable me to get on to the property ladder?
A: For two years starting from 25 March 2010, stamp duty has been scrapped on home purchases made by first-time buyers on properties worth up to £250,000. Couples buying homes jointly where one partner has previously bought a property will not be eligible, even if the other partner is a first-time buyer.
Q: We’re currently looking to sell our house valued at £1.4m – how will Budget 2010 impact on the sale?
A: If you are able to sell your house before 5 April 2011, you will not be subject to the stamp duty increase announced; however, after this date the stamp duty rate payable on a property purchase of more than £1m will increase from 4 per cent to 5 per cent.
Q: Following Budget 2010, will we need
to review our current inheritance tax planning provisions?
A: The pledge to increase the inheritance tax threshold (IHT) to £350,000 will now not take place; the Chancellor announced that he was freezing the current threshold of £325,000 for the next four years. The freezing of the IHT band for a further four years could cost a couple an additional £37,000 in IHT in real terms. If the value of your estate increases further and falls outside your current IHT provisions, it will make sense to seek professional advice and review your particular situation, especially if the value of your estate increases considerably over the next four years. Freezing the IHT threshold for another four years will mean that more families should consider estate planning opportunities by maximising reliefs and exemptions.
The Chancellor confirmed that the rate of capital gains tax (CGT) will remain at 18 per cent. However, the annual amount of gains exempt from the tax has been frozen at £10,100. The good news for entrepreneurs from April 2010 is that you will only have to pay 10 per cent on the first £2m of capital gains. Depending on the value of your business, this could save you up to £80,000 when you sell.
Q: I’m a small business owner – were there any good news announcements in Budget 2010 for me?
A: At the centre of this Budget was a £2.5bn package for small and medium-sized businesses. Business rates will be cut for a year from October and the investment allowance for small firms has been doubled to £100,000. Measures announced for small businesses aimed at assisting cash flow included the extension of HMRC’s ‘Time to pay’ scheme. This scheme supports companies in distress struggling to pay their tax bills. The Chancellor has also ordered state-funded banks RBS and Lloyds TSB to provide £94bn in small business loans and has created a new credit adjudication service for business owners who feel they have been unfairly rejected for credit.
Q: I earn £50,000 – how will my income
be affected by Budget 2010?
A: As previously announced, the Chancellor decided to freeze all income tax bands, which will mean you pay more tax on your earnings. There will be a 0.5 per cent increase in National Insurance contributions from 6 April 2011. The threshold at which you start paying tax at 40 per cent remains at £43,875 for the 2010/11 tax year. This could mean you end up paying an extra £1,248 a year based on a £50,000 annual salary. The top rate of tax for people earning more than £150,000 is 50 per cent, up from 40 per cent, which commenced on 6 April 2010.
Q: I’m aged 42 and want to take out an Individual Savings Account (ISA) – is it correct that I will be able to save a higher amount?
A: The Chancellor had already announced that the total ISA limit for everyone would increase to £10,200 from 6 April 2010. Depending on your attitude towards risk for return, you could now put all of your money into a stocks and shares ISA, or alternatively put up to £5,100 (previously £3,600) into a cash ISA, with the remainder available for stocks and shares. The Chancellor also announced that from 6 April 2011, the ISA limits would increase in line with inflation for every year of the next parliament. The level of the increase will be set by the level of the Retail Price Index (RPI) the preceding September.
Q: I currently receive pension tax relief – following Budget 2010 will it be limited?
A: It really depends on your level of income. If you earn over £130,000, the Chancellor confirmed that tax relief on pension contributions will be restricted from 6 April 2011. If your pre-tax income (including your own pension contributions) is less than £130,000 you will not be affected. Previously, up to 100 per cent of an employee’s salary could be paid into a pension tax-free. In an extensive report on the proposed changes, the government said: ‘It is neither fair nor sustainable in the current fiscal context to offer the greatest incentive to save in a pension to those who need it least. For these reasons, the government has acted to address the disproportionate levels of relief going to individuals on the highest incomes.’ The rate of relief will be tapered down so that those on incomes of £180,000 and over will receive relief at 20 per cent, the same rate as a basic rate taxpayer.
Q: We are over 80 – what did Budget 2010 mean for us?
A: Last year’s temporary increase to the winter fuel allowance was renewed for another year. This means that each household with someone over the female state pension age will receive £250, and each household with someone over the age of 80 will receive £400. The Chancellor is also making it easier for over-60s to claim working tax credit by cutting the number of working hours needed to qualify.