Highlights from the pre-Budget report
Chancellor Alistair Darling has delivered his pre-Budget report, the last before 2010’s general election.
He says it comes at a "critical time for the economy and country" and represents the choice between "going for growth or putting recovery at risk".
* An increase in national insurance contributions
* A new boiler-scrappage scheme to help 125,000 homes replace old boilers
* A new 50p monthly levy on landlines to help fund faster broadband
* Bankers' bonuses above £25,000 to be hit with 50% tax
* A cap on public sector pensions
* Measures to help older and younger unemployed people back into work
* Crackdown on tax avoidance and offshore accounts
Economic measures and forecasts unveiled:
* Darling says he is confident the UK economy will start growing by turn of the year, despite an expected 4.75% contraction this year. He forecast growth of 1% to 1.5% next year, and 3.5% in 2011/12.
* New legislation will be introduced to ensure public sector borrowing falls every year and is more than halved by 2013/14 to meet the deficit forecast plan. This is a "sensible" timetable, says Darling.
* Darling admitted public borrowing in 2009 would exceed its forecast of £175 billion - at £178 billion.
* As a share of gross domestic product (the official measure of economic health), public borrowing will be 12.6% this year. Darling also forecast that net debt will reach 56% of gross domestic product this year.
* He said the government would reduce its deficit by "encouraging growth, fairer taxes and tighter public spending".
* Introduction of a 50p per month duty on landlines to help fund faster broadband to 90% of homes by 2017.
* There will be no changes to income tax next year, but the starting point for national insurance contributions will be raised, and the rate will increase by 0.5%. People earning under £20,000 will not be affected.
* Bankers' bonuses over £25,000 will be taxed 50% to "claw money back for taxpayers". Banks, not the employee, will pay. This will force banks to reduce bonuses and also help to pay for young and older unemployed to get back into work.
* The rate of VAT will return to 17.5% on 1 January as planned, with no other changes in the pipeline. The inheritance tax threshold will not be raised as previously planned from £325,000 to £350,000, nor will the stamp duty holiday be extended.
* Boiler scrappage scheme to help 125,000 homes replace old boilers. Plus, £200 millon funding to help homes be more energy efficient. Tax breaks for people with own wind turbines.
* Public sector pensions will be capped, saving £1 billion.
* Extend free school meals to half a million children.
* With unemployment set to continue to rise, the support for mortgage interest scheme, which helps struggling homeowners, will be extended for a further six months.
* From January, no one under the age of 24 will be unemployed for more than six months without being offered work or training. The over 50s will also be offered specialist support to give them the skills and confidence they need to enter employment.
* To make it easier for people aged over 65 to receive working tax credit, the government will reduce the number of hours they need to work to be eligible.
* Roll-out a nationwide guarantee so that anyone in work will always be better off than they would be on benefits.
* Bingo duty will be cut from 22% to 20%.
* Child benefit and some disability benefits will increase by 1.5% in April.
* The Time to Pay scheme, which helps businesses pay their tax, has been extended for "as long as needed". The 1p increase in corporation tax for small businesses has been deferred.
* Empty commerical properties with a value below £18,000 will be exempt from business rates.
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 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.
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.
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.
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.