The Budget also included a reduction in tax relief on pension contributions paid by high earners. Tax relief for those earning more than £150,000 per year will be tapered off, disappearing completely for those earning £180,000 or more. Meanwhile, those earning more than £100,000 per year will see the withdrawal of their personal allowances from April 2010.

Fuel duty will rise by 2p per litre in September, while duty on alcohol and tobacco rose by 2%. Darling announced £2 billion-worth of help for the unemployed, and measures intended to boost the housing market and the motor industry. The Budget included some help for businesses, although the Confederation of British Industry criticised the Budget, commenting that it did not set out a “credible and rigorous path for restoring the public finances to health.”

Pensioners will see the basic state pension increase by at least 2.5%, regardless of inflation, and current winter fuel allowances will be maintained for another year despite the recent fall in energy prices. The limit on savings that pensioners can possess before their Pension Credits are reduced will rise to £10,000 in order to help those negatively affected by low interest rates. Meanwhile, the annual limit for ISA contributions will rise this year to £10,200 per year for those aged over 50, and for everybody from next year.

Darling expects Britain’s economy to shrink by 3.5% during 2009, and return to growth the following year. However, the International Monetary Fund expects the UK to contract by a rather more drastic 4.1% in 2009, and does not expect Britain to return to growth during 2010. Darling appears to be gambling on a relatively swift economic recovery for the UK; only time will tell whether this gamble will pay off. Here’s some more detail:

INCOME

Income Tax Increase

From the 2010/2011 tax year earnings over £150,000 will be subject to a new income tax rate of 50%. Pension contributors currently enjoying higher rate relief and earning in excess of £150,000 will continue to enjoy higher rate relief providing

a). pension contributions do not exceed £20,000, or
b). contributions in excess of £20,000 have been “regular” for the past two tax years.

Further information can be found in BN47 on the HMRC website.

Income Tax (dividends)

From the 2010/2011 tax year the highest rate of tax on UK dividend income will rise from 32.5% to 42.5%. This will affect investors with income in excess of £150,000.

Personal Tax Allowance

This will be reduced by £1 for every £2 earned above £100,000 from April 2010. Consider increasing pension contributions or “salary sacrifice” to reduce or avoid this additional charge.

Trust Taxation

As from 2010/2011 tax year the income tax applicable to most trusts will rise to 50% and at the same time trustee dividends will be taxed at 42.5%. The careful use of trusts may avoid both of these tax charges.

PROPERTY

Stamp Duty

The Stamp Duty holiday has been extended to the year end. Homes up to £175,000 will remain free of Stamp Duty providing the purchase completes by 31 December 2009.

Shared Equity Scheme

The Chancellor has made a further £80m available to help first time buyers onto the property ladder with the Shared Equity Mortgage Scheme.

Energy Eficient Housing

An extra £100m has been made available to build energy efficient homes.

PENSIONS

State Pensions

The Chancellor has commited to increasing the State Pension in 2010/2011 by a minimum of 2.5% even if we remain in a period of deflation.

Pension Credit

Individuals will be able to hold savings up to £10,000 before being means tested for Pension Credit. This replaces the existing £6,000 limit.

INVESTMENT

ISA Limits Increased

The Chancellor has increased the ISA limit to £10,200 from October this year for over 50’s. This will be extended to everyone else in April 2010. Up to 50% of the ISA investment can be in cash.

Enterprise Investment Schemes

Under previous rules investors could carry back 50% of the investment made up to 5th October subject to an overriding limit of £50,000. This restriction has been removed, allowing the full EIS limit of £500,000 to be carried back.

OTHER CHANGES

Winter Fuel Allowance

Last tax year’s special allowance of £250 for the over 60’s and £400 for over 80’s has been continued for this tax year.

Tax Planning Schemes

HMRC is to publish details of ineffective tax planning arrangements to increase consumer protection.

Offshore Disclosure Arrangement

HMRC will introduce a third opportunity to disclose assets held offshore, giving another chance for those with undisclosed assets to settle with HMRC, thereby normalising their affairs.

Inheritance Tax

As expected the Inheritance Tax (IHT) Allowance has moved to £325,000, giving an effective tax limit on second death of £650,000, providing the couple concerned are either married or in a Registered Civil Partnership. The rate of tax applicable remains at 40%. 

For further information and help with your understanding of this budget and its implications, contact us on 0845 30 50 222.

Despite the threshold rising to £624,000 for married couples and civil partners, (£312,000 for individuals) the boost in house prices over recent years means inheritance tax (IHT) could still be a concern for many people. It is therefore sensible for investors to consider the potential liability they may be leaving behind.

For most, the key contribution to the value of their estate will be the family home but it is not the only asset that counts. For example, ISA investments shelter investors from capital gains and income tax but not from IHT. Property held abroad also counts towards the total. The problem with IHT is not just that it has to be paid, but that it generally has to be paid quickly. Therefore, without a little planning, the family home or other heirlooms may need to be sold to meet the bill.

However, there are things you can do to offset the impact. For example, you have an annual gift allowance of £3,000 a year. Certain gifts for weddings, from parents, grandparents and even friends, are also exempt. Other useful tools, despite recent changes, include loan trusts and discounted gift schemes – indeed, there are a myriad of options available, some more complex than others.

This, along with the changes in legislation as the Government looks to close potential tax loopholes, mean it is always worth getting professional advice on the best way to ease any burden on your estate.

Employers often use seminars as a way of passing important information, advice and help to employees, particularly at times of change. Our seminars cover subjects such as Retirement and Redundancy for employees, and Investments, Inheritance Tax, and Wealth Management for the public. We also offer specialist seminar services to solicitors and accountants.

Our seminars can run from one and a half hours to two days, and are often offered as a free service.

We have just finished a successful run of seminars delivered to the public on the subject of Inheritance Tax and Investments. Venues included Celtic Manor Resort, the Bath Spa Hotel and the Institute of Directors in London. Seminars were well attended and the public expressed their appreciation of the content to a high degree.

More seminars are planned in March, April, and on an ongoing basis.

Please contact us on seminars@lansdownplace.co.uk for further information.