Budget Update - Budget That Rewards Work

 

This was George Osborne's third budget with a 'Budget for Business' theme.

For once, changes to pension legislation were minimal, compared to recent years, but they did not escape entirely.

There was no change to pension tax relief or the tax free cash available from pensions.

The Annual Allowance for pension contributions remains at £50,000 with carry forward still available.

The Lifetime Allowance reduces to £1.5 million from 6th April 2012 as previously announced.

The State Pension Age will continue to be reviewed to take into account increases in longevity.

The Chancellor also confirmed a new single tier Basic State Pension of £140 per week will be introduced.  Further details will follow.

The Government will also legislate to ensure that arrangements where an employer pays pension contributions into a scheme for an employee's spouse or family member as part of their package cannot be used to obtain tax relief and NIC advantages.

Confirmation of last year's Autumn Statement on 'small pot' commutation was received.  Individuals over 60 are able to commute pension pots of £2,000 or less held in personal pensions, regardless of their other pension savings.  This can be done a maximum of two times by any individual.

Non Pension Budget Changes

The top rate of income tax is being cut from 50p to 45p with effect from 6th April 2013.

The personal income tax allowance will rise to £8,105 from 6th April 2012 and to £9,205 from 6th April 2013.  There will be a freeze on existing age related allowances from 6th April 2013.

The basic rate tax limit reduces from £35,000 to £34,370 for 2012/13 and to £32,245 for 2013/14.

Capital Gains Tax exemption remains at £10,600 for 2012/13.

National Insurance Contribution (NIC) rates have been left unchanged but the thresholds have increased as follows:

  • Employer - 13.8% on income above £144 per week
  • Employee - 12% on income between £146 and £817 per week & 2% on income above £817 per week

The Inheritance Tax nil rate band remains frozen at £325,000 until April 2015.  After that date CPI increases will be used as the default indexation for future increases.

The main rate of Corporation Tax will be cut to 24% from 6th April 2012, reducing to 23% for 2013 and by 2014 it will fall to 22%

The Chancellor announced changes to the proposed cut of Child Benefit for higher rate tax payers.  The new proposals are that Child Benefit will be withdrawn from 7th January 2013 for tax payers who receive Child Benefit and their or their partner's income exceeds £50,000.  The withdrawal will be gradual where income falls between £50,000 and £60,000.  The amount will be 1% of Child Benefit for every £100 of income that exceeds £50,000.  No Child Benefit will be paid where income exceeds £60,000.

From 6th April 2013, the Government will introduce a cap on all unlimited income tax relief.  The cap will be £50,000 or 25% of income whichever is higher.  This will not extend to reliefs that are already capped, such as pensions.

For 2012/13 the annual investment limits for Individual Savings Accounts (ISA) will be £11,280, up to £5,640 of which can be invested in cash.

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