Budget 2012 predictions
This year's Budget will take place on 21 March and rumours are already circulating about what Chancellor George Osborne will announce.
"There is a limited scope for manoeuvre as the economy has not grown as the government had hoped, but there may be a few ways in which the Chancellor can help families and individuals in the Budget," says Stephen Barrat, spokesperson for James Cowper accountants.
Here are the experts' Budget predictions:
ROB BURGEMEN, DIVISIONAL DIRECTOR AT BREWIN DOLPHIN
"I think it's likely tax relief on pensions will go. I suspect they will scrap the 50% tax relief on pensions, perhaps not the 40% relief as well. We're suggesting to clients to contribute to their pension before the Budget.
"And you never know the government could suddenly say 'everyone has their money in Isas and we're not getting any capital gains tax'. So it might suddenly cap it at £50,000, so a lifetime allowance for ISAs.
"I don't think there will be many big announcements, as we have a fragile economy."
NIRAJ VYAS, UK FINANCIAL SERVICES DIRECTOR AT GUARDIAN WEALTH MANAGEMENT
"We hope to see the chancellor announce a strategy that will, in particular, get the one million or so unemployed young people into work.
"We would also be keen to see the government introduce tax cuts and the abolition of the 50% tax rate on higher earners. The coalition government has committed to retaining this higher rate but we feel it acts as a deterrent to foreign investment and entrepreneurs. Instead, more should be done to encourage new business ideas and start-ups and we hope to see the government provide incentives to entrepreneurs such as tax relief to encourage new ventures and new employment.
"We also hope that the chancellor doesn't bow to coalition pressure and introduce a levy on homes worth £2 million plus, currently advocated by the Liberals, as it stands to further depress an exceedingly fragile housing market."
STEPHEN BARRATT, PRIVATE CLIENTS TAX DIRECTOR AT ACCOUNTANTS AND BUSINESS ADVISERS JAMES COWPER
"The mansion tax has been mooted for some time and is an election pledge for the Liberal Democrats. The idea is that properties worth over £2 million face an annual charge. This would be a new departure, but with recent talk of the government looking to encourage older people living alone in large properties to downsize, it is perhaps more of a realistic possibility than it has been before.
"Also of interest to older people, the Office of Tax Simplification - which was set up to see what taxes should be changed, abolished or enhanced - has recommended a review of inheritance tax. This is due to start this year and whilst no detailed announcements are expected, the Budget may give us some sense of where the chancellor would like the review to focus, with the detail following in a future budget.
"The personal tax allowance rises to £8,105 from April 2012 and the government has an ambition for it to reach £10,000 during the parliament, so we may see an announcement of another increase greater than inflation from 2013.
"Another idea that's been suggested is whether the childcare voucher scheme, which gives a tax break to working parents, could be extended to cover the self-employed and domestic help beyond Ofsted-registered nannies. Both of these initiatives would help achieve "fairness in the middle' with parents who might like to return to work.
"From April 2013 child benefit will be abolished for those households with one person earning more than £42,475. This is not popular amongst the "squeezed middle' but is unlikely to be reversed unless the higher rate of tax goes up. The 50% higher tax rate is also likely to remain."
BRIAN MURPHY, HEAD OF LENDING MORTGAGE ADVICE BEREAU
"We still hope the government will reconsider the decision to remove the stamp duty holiday - as although the evidence suggests it has done little to stimulate activity - its removal creates unnecessary confusion as some buyers will be trying to complete before the deadline expires and may abandon their purchase if they don't think they will be able to complete in time."
PAUL TAYLOR, MANAGING DIRECTOR OF FINANCIAL ADVISERS MCCARTHY TAYLOR
"It is unlikely there will be any reduction in higher-rate tax from the 50% top rate but I would anticipate an increase in the personal allowance, as this helps the lowest paid.
"Increased taxation of luxury goods is certainly possible as is increased excise duties.
"We would hope to see increases in allowances for investment into Isas above the £10,680 and extensions to the relief for pensions, currently effectively capped at £50,000.
"We already have increased relief for investment in business - enterprise investment scheme's 30% tax relief on £500,000 investment to be increased to £1 million from 6 April - but we would like to see the rate of relief increased as well as the maximum amount; these schemes help smaller companies struggling for finance.
"Reduction in the national insurance burden on small firms would be welcomed and increase employment opportunities.
"Government could consider introducing an incentive to students to provide for pensions, through write off of student loan debts.
"It could also introduce incentives to small business to occupy high street commercial property and take on more staff, through business rate relief/tax incentive on purchase of commercial property by individuals/small companies/improve public transport provision to smaller towns away from out-of –town stores.
"Tax relief on commuter fares for journeys over 20 miles to place of employment would help those struggling with rising travelling costs.
"Encouraging further charity giving by enhancing relief would help funding perhaps by giving a credit at a higher rate for all, say at 50% irrespective of the amount of tax paid.
"Abolition of stamp duty on commercial property and replacement with VAT would simplify the process and give relief to companies investing in brick and mortar, at the same time stamp duty land tax on private properties should be applied only on properties over £500,000 to help move the lower end of the property market."
This article was written for our sister website Money Observer
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Enterprise Investment Scheme
A scheme set up to encourage investment into small, unquoted trading companies and give investors tax breaks to compensate for taking risk. Because the companies in the scheme are not listed on a stock exchange they often carry a high risk, so the tax relief is intended to offer some compensation. An EIS company cannot be a subsidiary, must trade wholly in the UK, can’t employ more than 50 people and certain activities (including forestry, farming and hotels) preclude companies from offering EIS relief.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.