Budget 2013: Winners and losers
Investors in small companies
Chancellor George Osborne called for the abolition of stamp duty on buying shares on growth markets such as AIM or the ICAP Securities and Derivatives Exchange (ISDX) from April 2014. Currently, Stamp Duty amounts to 0.5% of every transaction.
Corporation tax will be cut to 20% from April 2015. 450,000 businesses will also benefit from a "national insurance holiday" worth up to £2,000 and pay no "job tax" at all (see new employees).
First-time home-buyers and builders
A Help to Buy scheme directed to get more people on the housing ladder will enable buyers to purchase a new home with as little as a 5% deposit. Up to 20% of the cost of the home is then funded by a "shared equity" loan, which will be repayable when the house is sold.
The loan will be interest-free for the first five years with the remainder of the loan paid for with a standard mortgage.
Part of his "taking tax off jobs" plan, the Chancellor announced a new employment allowance, which is set to take the first £2,000 off employer National Insurance bills for every employer in the country.
The "alcohol duty escalator" was scrapped on beer and duty was cut by 1p per pint from 24 March.
Members of the armed forces
The armed forces will be exempt from the 1% cap on public sector pay.
Holders of CTFs
Six million holders have been given the right to transfer child trust funds (CTFs) to the newer Junior ISAs (JISAs) - introduced in 2011 - which offer better rates and cheaper investments. Holders will get access to a best-buy account paying 6% interest on JISAs rather than 3.05% on CTFs and "index tracker" funds that cost 0.27% a year instead of 1.5% on CTFs.
Older Equitable Life policyholders
Victims of the collapse of Equitable Life are to be compensated after been denied compensation with ex-gratia payments of £5,000 to be made to elderly policyholders, with an additional £5,000 available to people on pension credit on the lowest income.
Initially scheduled for September, the 3p fuel duty rise has now been scrapped.
Petrol and diesel are now 13p per litre cheaper than they would have been if the escalator had been enforced over the past two years, the Chancellor said.
The official growth forecast announced three months ago was slashed by half to 0.6%, with the Chancellor admitting the recovery was "longer than anyone hoped".
Retailers wanted measures to put more money in consumers' pockets and reduce the costs on their own balance sheets.
Wednesday's Budget has touched on the first, but completely failed to achieve the second: shops are now left facing a 2.6% hike to their business rates bill, a move which will add £175 million to their overheads, said David McCorquodale, head of retail at KPMG.
Still suffering from the recent scandals that have hit their reputations, banks have been hit by an increase in bank levy from 0.13% to 0.142% to account for the reduction in corporation tax from April 2015.
Contrary to beer drinkers, alcohol escalator duty was not waived, and will stay set at plus 2% on all wines.
In the same category as wine drinkers, the escalator was enforced on tobacco and cigarettes.
The Bank of England's quantitative easing (QE) programme is set to continue, according to the Chancellor, who dashed hopes of an improvement in annuity rates. In a tweet, pensions company MGM Advantage's Andrew Tully explained: "More QE will keep gilt yields down and keep annuity rates near all-time lows."
Members of final salary pension schemes
Workers could be at risk of seeing their schemes close as a result of the introduction of flat-rate state pension measures, while experts are expecting members of final salary schemes and their employers pay lower National Insurance contributions to pay more as the "contracting out" scheme ends.
Unveiling "one of the largest ever packages of tax avoidance and evasion measures", the Chancellor listed agreements between the UK and
the Isle of Man, Guernsey and Jersey, as well as new rules to put an end to offshore employment intermediaries. Osborne threatened the government would name those encouraging and promoting tax avoidance schemes.
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
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.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
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.
Final salary pension
A defined benefit pension scheme is one where the payout is based on contributions made and the length of service of the employee. A typical scheme would offer to pay one-60th (0.0168%) of final salary (the one you’re earning when you finally retire) for each year of contributions to the scheme (even though these years were probably paid at a lower salary). Someone retiring on a final salary of £30,000 who had been a member of the scheme for 25 years would receive a pension of 42% of their final salary (£12,300 a year before tax). Sadly, many companies are winding up their final salary schemes or closing them altogether, meaning pension benefits accrued after a certain date (or those available to new employees) may be on a less generous money purchase basis.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.