The budget on 24 March 2010 was made with the upcoming election in mind. Indeed, much of the budget will not become law before the election and is therefore subject to change. Should the Conservatives win they are committed to introducing another Budget within 50 days of election. We are therefore uncertain of the exact fiscal policy that will be implemented by the incumbent government come election day. It is worth noting that a more aggressive fiscal policy will be high on the agenda for any elected government as they attempt to reduce our deficit. There were however, some surprises and interesting announcements that are worth a mention:
Income Tax Rates and Personal Allowances
The main allowances and tax bands remain unchanged from 2009/10 tax year thereby producing a so called “stealth tax” as salaries increase.
Don’t forget, the new 50% rate (42.5% for dividends) for those with a taxable income over £150,000. Not to mention that the personal allowance will be reduced by £1 for every £2 of taxable income exceeding £100,000.
From the new tax year the ISA rates have increased to a maximum of £10,200 (£5,100 in cash). Moreover, this limit is to be linked to inflation (RPI) going forward. For a married couple or civil partnership this means that £20,400 of capital a year can produce tax free income.
Conclusion: Converting income to capital growth, producing income from tax sheltered investments and transferring income producing assets to a “lower rate” spouse is the name of the game.
Inheritance Tax (IHT)
The £325,000 Nil Rate Band threshold is frozen until 5 April 2015. The IHT over and above this figure remains at 40%.
Conclusion: More and more people will have IHT to pay on the death of a loved one. Early tax planning is the key with the use of Gifts, Trusts and tax efficient investments.
Stamp Duty Land Tax (SDLT)
The good news is that for first time buyers there will be no SDLT for purchases below £250,000 for two years.
This short term gain to the tax payer is offset by the long term and bigger gain to the treasury with the proposed increase of SDLT from 4% to 5% for residential property purchases over £1 million commencing in 2011/2012.
Conclusion: For those lucky people that can afford £1m homes; consider moving sooner rather than later. Alternatively, don’t move just improve!!
Capital Gains Tax (CGT)
The CGT rate remains at 18%. The Annual exemption is frozen at £10,100.
Conclusion: Enjoy it while it lasts but you will still need to plan for the future by making tax efficient chargeable disposals. Where appropriate, make use of your annual exemption and your spouse’s (or business partners) for each tax year.
Entrepreneurs’ relief (ER)
ER reduces the effective CGT rate to 10% for the disposal of certain assets and businesses. The current limit of £1 million is to be increased after 5 April 2010 to £2 million thereby potentially saving a business owner an extra £80,000, and £160,000 overall.
Conclusion: You will not be entitled to extra relief for disposals before 6 April 2010