Budget 2013: What to watch - personal finance

Income tax

Recent news: The table below shows where the government has got to on its pledge to "increase the personal allowance to £10,000, making real-terms steps each year towards meeting this as a longer-term policy objective".

Currently, under-65s can earn £8,105 a year before they pay income tax. Known as the personal allowance, this will increase to £9,440 for the tax year 2013-14, starting on 6 April.
Pensioners earning less than £24,000 per annum get a more generous tax-free allowance of £10,500 for 65-74 year olds and £10,660 for those aged 75 and over.

Personal allowance bands

Budget June 2010 From £6,475 to £7,475 in April 2011 £1,000
Budget March 2011 From £7,475 to £8.105 in April 2012 £630
Budget March 2012 From £8,105 to £9,205 in April 2013 £1,100
As December 2012 From £8,105 to £9,440 in April 2013 £1,335

Source: Office for Budget Responsibility, Capital Economics.

Analysts' expectations: "It will be tempting to take the last step to £10,000 - if only as a reaction to Labour's plan to reintroduce the starter 10p rate of income tax that Gordon Brown abolished," comment analysts at Capital Economics. "The government could pre-announce a final £560 increase for April 2014. Or it could increase the size of the increase planned for this April."
This April's increase has already been boosted once: in the 2012 Budget, the government pre-announced a £1,100 rise, then increased it to £1,335 in December's Autumn Statement.
To fund this increase in personal tax allowance Dominic O'Connell, head of tax, trust and estate planning at Coutts, believes there could be an increase in national insurance payments for the self-employed, who currently pay less than the employed.
"This might be justified by the government on the basis of the introduction of a flat-rate state pension," he says. However, he warns: "As the pension change is not scheduled until 2017, introducing such an 'alignment' before then could be controversial."

Other personal tax changes

Higher-rate income tax: This threshold will increase by 1% a year in 2014-15 and 2015-16. The increase, which is below the level of inflation, is likely to bring another 400,000 taxpayers into the 40% higher rate.
Capital gains tax: The annual exemption from tax of any capital gains will increase by 1% a year in 2014-15 and 2015-16 - to £11,000 from 6 April 2014 and £11,100 from 6 April 2015.
Inheritance tax: Any tax on inheritance starts to be paid from £325,000 onwards. This amount was supposed to rise to £329,000 from April 2015 - the first increase since 2009 - but will now be frozen at its current rate until 2019 at the earliest.


Recent news: A range of working-age benefits will rise by just 1% in April. These include jobseeker's allowance - which will rise by 71p to £71 a week - and maternity, paternity and adoption pay. Other benefits, such as carer's allowance and some disability benefits, will mirror inflation, with a 2.2% rise.
Local housing allowance, which is paid to less well-off council and housing association tenants to help with rent, will be capped at a 1% rise for each of the of the two years from April 2014. Claimants typically receive between £50 and £100 a week.
Child-benefit changes have already started to take effect. From January, families with one parent with a taxable income of more than £50,000 have lost some of the benefit and it has been withdrawn entirely if one parent earns above £60,000.
This has affected about 1.2 million families in the UK. Child benefit is paid at the rate of £20.30 a week for the first child, and then £13.40 a week for each child after that. This rate is frozen until April 2014.

Benefits changes

Working-age benefits including job seeker's allowance, employment and support allowance and income support 1% rise in each of the next three years from April 2013. Lower than the 2.2% that might have been expected
Child benefit Frozen until April 2014. Will rise by 1% in each of the next two years
Maternity, paternity and adoption pay Rise by 1% in each of the next three years
Carer's allowance and disability benefits Will rise in line with inflation by 2.2% in April
Child tax credits and working tax credits To rise by 1% in each of the next three years, although some will be frozen in 2012/13
Local housing allowance Capped at a 1% rise for each of the two years from April 2014
Basic state pension Under government guarantee, will rise by 2.5% in April
Additional state pension Up 2.2% in April, in line with inflation

Source: BBC

Analysts' expectations: Toby Ryland, corporate tax partner at HW Fisher & Company, is urging the Chancellor to use his budget to "sort out the child benefit mess", explaining: "The prospect of a million parents now having to complete a tax return just so they can be stripped of the benefit makes no sense. The admin costs of processing the extra mountain of tax returns risk cancelling out the savings."
HW Fisher & Company is also calling on the Chancellor to unlock the potential of thousands of new parents who are prevented from returning to work by Britain's "confusing and expensive childcare system".
Ryland explains: "It's nearly seven years since the introduction of childcare vouchers, a scheme that allows parents to exchange part of their gross salary for childcare without paying tax or national insurance. In all that time, the amount they can exchange has remained capped at £55 a week.
"In many parts of the country, £55 won't even cover the cost of one day in a nursery. Such a low cap renders the vouchers all but pointless."
He suggests it is "far better" to allow employers to pay employees' childcare costs directly to the childcare provider free of any national insurance costs for both employee and employer.
"This would reduce the cost by approximately 25% for a basic-rate taxpayer (less for a higher-rate taxpayer) with the net payment being a taxable benefit," he explains, adding that it would be "simple to administer, making it more attractive to employers, and would benefit all employees".


Recent news: From 6 April, the overall annual limit for Individual Savings Accounts (ISAs) will see a 2.1% rise from £11,280 to £11,520.
Half of this can be saved in a cash ISA. The rest, or the total amount, can be invested in a stocks and shares ISA.

Fuel duty

Recent news: With petrol-pump prices having climbed to their highest level since May 2012 in February, and expected to rise further over the month, the Chancellor once again has to decide whether to respond to pressure and cancel or postpone the September fuel-duty hike.
Osborne spent £1.6 billion in December's Autumn Statement to cancel the 3p fuel duty increase planned for 1 January 2013 and postpone April 2013's 1.5p increase to September. Fuel duty is subsequently planned to increase each September in line with retail price index (RPI) inflation.
So, although he may feel he has already done enough, calls for further action have grown in response to the 6% rise in petrol prices since the start of the year.
Analysts' expectations: Capital Economics calculates cancelling September's rise would cost £700 million per annum, while an immediate 1p cut would cost £450 million.
Stocks to watch: Any company which relies on road transport, especially supermarkets such as Sainbury's, Tesco and Morrison Supermarkets.

Property tax

Recent news: Attributed to business secretary Vince Cable, in its original form the concept of a mansion tax is that all properties valued at over £2 million would attract an annual tax of 1%. But following the 2012 Budget, the proposal was modified and a 7% rate of stamp duty land tax was instead levied on house sales over £2 million.
An annual residential property tax is already scheduled to begin in April. It will be paid by companies that own high-value residential properties. For example, an annual tax of £15,000 will be levied on properties valued at between £2 million and £5 million.
Analysts' expectations: "One possibility that might be palatable for the Conservatives is to introduce a mansion tax only for overseas owners of UK property," point out analysts at Capital Economics. They also note that from April, there will already be an annual charge on UK houses owned by companies or offshore trusts.
O'Connell adds that despite ongoing pressure in favour of the tax, the measure could still be too unpopular with the Conservatives' core support for the government to pursue it at the present time.
"Many believe that it would be exceptionally difficult to efficiently administer such a policy and it is also often argued that any such tax could have an unfair impact on some living in certain property 'hot spots'," he explains.
There are also expectations of an extension of the "NewBuy" scheme, which helps people to buy homes with a 5% deposit, and accelerated public land sales.
Stocks to watch: Housebuilders, such as Barratt Developments, Wolseley, Persimmon and Bovis Homes.
This article was written for our sister website Interactive Investor

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Your Comments

One thing you have forgotten is that the age related income tax allowance is NOT rising this year. That will inevitably ahve an effect on spending and put the recovery back yet further.

Don't forget pensioners can claim 50% back on tax paid on pensions, savings etc on tax form R40, down load it from website, fill in and send by post.  I am no expert but it is easy. DJ

What's this about claiming 50% back using tax form R40? I've never heard of that one. I know you can claim 100% of your saving tax back if your total earnings fall below the tax free allowance limit using this form. I'd be pleased to hear more.

Why is it beyond the grasp of the Chancellor and the OBR, that austerity measures that deflate the economy can only cause a downgrading of savings and an increase in inflation.
Your readers worrying about the minor tax differences are missing the fact that their savings and investments are being eroded at an alarming rate.
Only the very rich, who can weather this storm, can support the complacent policies of the exchequer.
If your website is truly dedicated to those who save  and invest for the future, then surely it's your duty to inform your subscibers of the disastrous effect this austerity policy will have on their pensions and savings.

I'll try to explain, it was on this website a few weeks ago. If you are retired and come into the tax bracket you pay 20% tax on your pension and on any interest paid on any type of savings. Wait till the end of the year and fill in R40 giving all the tax you have paid on interest received. Return it by post, you cannot do on line and they will return 50% of tax paid on interest received. You can go back 4 years, each year on a seperate form. They replied to me in 2 weeks and said the money will be paid into my bank account. In effect you are only paying 10% on interest. Hope I have been precise, good luck. DJ

Stevenick, you can only claim back this 10% on all savings interest if your TOTAL income (including the interest on your savings) is less than your tax free allowance plus £2710.
So currently this years tax allowance of £8015 plus £2710 means total income less than £10725.

So if ALL your income not including interest is £10725 or more you get taxed at 20%.
If ALL your income including interest is less than £10725 you get the 10% back on the interest.
If your income not including the interest is below £10725, but the interest means that total earnings is pushed over £10725 you get 10% tax returned on the interest that is within the £10725, but don't get the relief on any interest that puts you over £10725.