Many of the points raised in the 2010 budget, such as the budget deficit being 11 billion lower than forecast may come as good news but there is little most of us can do about it.

There were however many points that may require action.

ISA allowance to be raised by inflation

In 2009 the chancellor announced that ISA limits would increase from £7200 to £10,200 and the cash limit to half that – £5,100.

The new measure will add to this by increasing the allowance each year in line with inflation by tracking the retail price index. With an estimated inflation rate of 2%, the ISA limit will be approximately £1,000 higher at £11,200 within five years. Higher rate tax payers who will now pay extra tax at the new 60% and 50% rates should make best use of their allowances.

To make best use of this increase don’t wait until next year to use your ISA allowance – Invest just after the 6^th of April instead.

Inheritance tax rate frozen

The IHT rate will be frozen at £325,000 for the next 4 years. Over the next four years this could cost a couple an additional £37,000 in IHT in real terms. This seems in direct conflict with Tory plans to increase the allowance to £1 million. However the Tories have now stated that this plan is an “aspiration” which will be done when it is afforadable – given the budget deficit, not anytime soon then?

In his budget speech the chancellor indicated that for the first time IHT schemes will fall under the disclosure of Tax Avoidance Scheme rules, which previous have only covered income tax, corporation tax and capital gains tax. However most of the methods we use just require early planning without the use of “fancy tax schemes”.

Unless you are super rich IHT has always been a voluntary tax which can easily be mitigated or even eliminated by sensible planning. OK so you don’t know when you are going to die but the earlier you plan to avoid the tax the easier it is. The new cases currently going through the UK Supreme court should also provide guidance on pre-nuptial and post nuptial agreements. All essential in the battle to preserve and protect hard earned assets.

Stamp duty abolished for first time buyers

First-time-buyers will not have to pay stamp duty on properties worth less than £250,000 but the wealthy face higher rates to pay for the help.

The starting rate for first time buyers will now be £250,000 up from £125,000. However anyone buying properties valued more than £250,000 will pay 3%, while those purchasing homes worth more than £500,000 will pay 4%.

The problem for the wealthy or business owners is that property bought at over £1 million will attract 5% stamp duty land tax, as from 6^th April 2011. So if you are planning to do this, buy now not next year.

However there are still proven methods of tax planning which can reduce this tax charge by over 50% today.

Capital gains tax not increased

Somewhat surprisingly there will be no change to capital gains tax, which will remain at its current level of 18%. This is certainly good news and utilising this underused allowance annually is certainly worthwhile.

Entrepreneur’s relief  increases from £ 1 million to £2 million

This is another surprising increase which should be well received by business owners. Basically selling a business for up to £2 million will pay 10% tax on the gian in value and 18 % on any figure above this. Accumulating assets in a company and then selling it on is a worthwhile method of reducing your taxes.

Forced retirement age to be scrapped?

The chancellor stated he would review the default retirement age by either scrapping it or offering greater flexibility to those over 65.

Current rules give employers the right to force a man aged 65 or a woman aged 60 to leave work. The government has already announced that starting in 2024 it would gradually increase the state pension age from 65 to 68 by 2046 – and 65 for women by 2020.

Unfortunately, many older people need to work beyond 65 due to insufficient assets which can provide an income. Reviewing your retirement planning annually is essential for most people so that you do not fall into the problem of having to work at this stage of your life.

Help for small business

The bonus tax on banks would help fund a one-off £2.5 billion initiative to benefit small businesses and develop skills across the UK.

Between them RBS and Lloyds lent £38bn to small and medium businesses last year but the Government wants this to increase significantly. A target of £94 bn of new lending for the state-owned banks, with half of this to be lent to small businesses.

A target is different to actual lending. Mr Darling did not really explain how he expects to achieve this target. It will be interesting to see how the Banks alter their current lending policy with this in mind.

The “Time to Pay” scheme, giving SMEs (small or medium enterprises) more time to pay tax bills, will be extended for the whole of the next Parliament. This is very useful at this time when many small businesses are struggling.

Cutting business rates for one year from October for half a million SMEs in England will also help. It is estimated that 345,000 SMEs will pay no rates at all.

Help for motorists

Fuel duty will increase by 1p this April, 2p less than the planned rise of 3p. There will be a further increase in fuel tax of 1p in October and a final 1p in January 2011, so that when the full duty increase comes into effect it should be in line with inflation. Darling also promised £100 million to pay for filling in potholes and £285 million on motorways.

However watch out for increases in the oil prices in the coming years as if the world comes out of this recession next year oil prices and thus petrol prices are likely to rise. This may affect your choice of car in the next few years.

Tough on teenage drinkers?

The government plans to increase the current duty on wine and beer by 2%, coming into effect at midnight this Sunday. This means the price of a pint of beer will increase by 2p, a bottle of wine by 10p and a bottle of sparkling wine by 12p.

Cider drinkers will see a much higher tax increase of 10% come into effect, increasing the cost of a pint of cider by 5p. Darling explains this is because cider has been under taxed in the past and needs to be corrected. From September, changes will also be made to the definition of cider to ensure stronger brands will be taxed more.

From what I can see this might be quite sensible to reduce level of teenage drinking too?

Tough on the wealthy!

This was something of a Robin Hood Budget as it milks the wealthy for more tax to avoid tax rises for everyone else, for now at least.

Those with very large pension funds will be frustrated that the Chancellor has frozen the annual pension allowances at £255,000 and lifetime allowance at £1.8 million up to and including the 2015/16 tax year. This rubs salt into the wounds of those people who’ve already been hit by the effective £130,000 earnings cap for higher rate tax relief on contributions.
 
The same individuals may well also be affected by the introduction of the 5% stamp duty rate on residential properties costing over £1 million. While it’ll hardly likely to break the bank for those concerned, it re-affirms that the rich are easy pre–election targets for a government that badly needs to raise more in tax.

After the election I can see more measures being passed to raise additional taxes from the rest of the population.

Any further questions?

If you have any questions on the Budget and your financial planning please call us on 01582 839280 or Email us.