Budget 2011: Are you Norman Lamont with an iPod?

Chancellor George Osborne’s second Budget was predicted to be a sober affair but the country was treated instead to tough tax avoidance measures, sweeping changes to income tax and a plethora of pensions moves.

Ed Miliband’s comment made us all smile at Chamberlain, when he branded George Osbourne ‘Norman Lamont with an iPod’.

Here are the main points of the Budget.

Investments

Enterprise Investment Schemes: increased rate of income tax relief from 20% to 30%.  Increase to maximum size of qualifying company, the maximum amount that can be invested in one company and the annual amount that can be invested.

Changes apply from 6 April 2012

Venture Capital Trusts: increase to the maximum size of qualifying company that can be invested in.

Changes apply from 6 April 2012

Capital gains tax indexation: capital gains tax annual exemption amount will be increased in line with the consumer price index rather than the retail price index. Parliament will still be able to override this if it determines a specific amount should apply.

Changes to apply for the 2012/13 tax year

IHT: inheritance tax will be reduced by 10% for those that give 10% of their estate to charity.

Changes to apply from April 2012

Savings

NS&I: reintroduction of NS&I index-linked savings certificates pegged to the retail prices index.

Changes expected to apply from 2011/12

Junior ISAs: available for UK resident children who do not have a child trust fund account. Available as a stock and shares products.  No limit has been set as yet.

Changes expected to apply from autumn 2011

ISA indexation: annual ISA subscription limit will increase in line with the consumer price index rather than the retail prices index. If the CPI is negative, the limit will remain unchanged. The value of a cash ISA will continue to be half of a stocks and shares ISA.

Changes to apply from 2012/13 tax year

Pensions

Discount rate: the public sector pension discount rate has been reduced to 3% from 3.5%, increasing taxpayer liabilities from the current £750 billion.

Changes still need to be consulted on

State pension age: will be formally linked to longevity. It is already due to rise from 65 to 66 in 2020 but future increases will be more ‘automated’.

Consultations will be ongoing

Flat rate state pension: the £140-per-week pension has been confirmed. It will only be available to new retirees.

Changes to be consulted on

Contracting out: contracting out of defined benefit schemes will be scrapped as part of the plan for a £140-per-week state pension. This will remove contracting out for public sector pensions too.

Consulted on as part of S2P reform

Public sector pension contributions: have been increased to 3% as the government plans to comply with the recommendations of Lord Hutton’s review of public sector pensions.

Changes to be consulted on

Evasion

Disguised remuneration: an income tax charge will now apply to third party arrangements to provide extra reward to employees including: lifetime loans which are not paid back, reward recognition and employer financed retirement benefit schemes.

Income tax will be charged on the sum of money made available.

Changes apply from April 2011

IHT: innovative inheritance tax schemes will face stricter disclosure rules. IHT will be brought in line with the Disclosure of Tax Avoidance Schemes.

Change to apply from 6 April 2011

Unauthorised unit trusts: the Treasury has proposed a clampdown on unauthorised unit trusts used by companies to avoid tax. It will also look at high-risk avoidance schemes and creating a generic defence against avoidance.

Consultation to start this year

Income

Income tax and national insurance merger: the Treasury has proposed a consultation on merging the two taxes on income. It takes on a recommendation by the Office of Tax Simplification.

Consultation is expected this year

Indexation of national insurance: basis for indexation for national insurance rates, limits and thresholds will be in line with the consumer price index instead of the retail price index.

Changes apply from 6 April 2012

Personal income tax allowance for under 65s: personal allowance increased to £8,105 for 2012/13 and basic rate limit reduced to £34,370. All other income tax personal allowances will be subject to indexation and increased in line with the retail price index.

Changes apply from 6 April 2012

Non-doms

Remittance charge: increased from £30,000 to £50,000 for non-domiciled people who have lived in the UK for 12 years and wish to remit income and gains to the UK tax free.

Changes to apply from 6 April 2011

Statutory residency test: to be introduced for non-doms to decide what makes a person a UK resident or non-resident for tax purposed.

Consultation to follow

Business

Entrepreneurs’ Relief: lifetime limit on gains qualifying for capital gains tax entrepreneurs’ relief doubled from £5 million to £10 million. Gains qualifying for this relief are taxed at 10%.

Changes apply 6 April 2011

Corporation tax main rate: this year to be reduced by 2% instead of the 1% reduction announced in the emergency Budget last year. It will be followed by three years of 1% drops taking the rate to 24% by 2014.

Changes apply from 6 April 2011

Bank Levy: introduction of a levy based upon total chargeable equity and liabilities on balance sheets. This levy will be increased  until the end of April and then reduced again.

Changes apply immediately

Property

Stamp duty land tax: purchasers of land comprising of more than one dwelling will no longer have to pay increased stamp duty land tax. It will be calculated as the aggregate consideration divided by the number of dwelling, subject to 1% tax.

Change to apply after Finance Bill is given Royal Assent.

24th March 2011

Adapted from an article published in New Model Adviser, author Michelle McGagh.

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