The manifestos at-a-glance: how will they impact your finances?
This week has seen the three main political parties release their manifestos and policies. But what will the parties’ plans mean for your finances?
We’ve recapped as to what will happen to taxes, banking, families and property under a Labour, Conservative or Liberal Democrat government.
Labour has pledged not to raise income tax and promised not to extend VAT to food, children's clothes, books, newspapers and public transport fares.
From 2010 a "toddler tax credit" would provide an additional £4 a week for families with one and two-year-olds who earn less than £50,000 a year.
However, Labour intends to increase national insurance contributions by 1% in April 2011 for people earning more than £20,000. NI contributions from employers will be raised for everyone earning more than £5,700.
Key tax policies in the Conservative manifesto include reversing most of the government’s planned NI rises by limiting the rises to those earning more than £35,000 a year.
However, it would keep the 50% income tax rate for those earning more than £150,000 a year for the time being.
The Conservatives will also freeze council tax for two years, scrap Labour’s phone tax and prevent high earners from claiming tax credits.
The Lib Dems have promised a “tax overhaul”. This will include making the first £10,000 of earnings tax-free for low and middle-earners. The move, the party says, will take 3.4 million low earners out of tax altogether.
The £17 billion tax cut would be paid for by raising capital gains tax, cutting pensions relief for high earners, increasing aviation taxes and by a "mansion tax" of 1% on properties worth £2 million or more.
The Labour party will turn the Post Office into a “People's Bank”, with an extended range of competitive products.
In the pre-election Budget, it also announced that everyone would have the right to a basic bank account and it would be made easier to switch banks and accounts.
The Tories plan to introduce a new Consumer Protection Agency (CPA) to take over the Financial Services Authority’s consumer protection role. The CPA would have powers to define and ban excessive borrowing rates on store cards and introduce a seven-day cooling off period for store cards.
There would also be free national financial advice service funded through a new social responsibility levy on the financial services sector.
The Lib Dems’ manifesto includes measures to ensure banks can't charge customers unfairly for going over their limit or bouncing a cheque. They would also cap interest rates charged by credit cards and store cards.
Under the Lib Dems banks would be broken up into retail and investment sections and the party would introduce a banking levy to pay for the state support they have received. Northern Rock would be turned into a building society.
Under Labour fathers would also get four weeks’ paid paternity leave, double the existing leave.
The free nursery place scheme would be extended to two-years olds who will get 15 hours a week of free nursery education.
To tackle unemployment, every young person would receive guaranteed education or training until the age of 18.
Child trust funds (CTFs) would carry on under Labour but a Conservative leadership would cut contributions to those households earning more than £16,000 a year.
The Conservative party will also stop paying tax credits to families with an income of more than £50,000.
Under the Lib Dems, parents would be able to share parental leave and it would be extended to 18 months over time. Fathers would also have the right to attend ante-natal appointments and grandparents to request flexible working.
Every child from the age of 18 months upwards would receive 20 hours of free childcare. However CTF payments would be reduced.
Labour announced in the Budget that it would increase the stamp duty threshold from £125,000 to £250,000 for first-time buyers for the next two years. There would also be a new 5% rate of stamp duty for property transactions over £1m from April 2011
The Conservatives plan to cut stamp duty permanently for first-time buyers and it will be easier for social tenants to buy homes.
The Liberal Democrats would introduce a 1% "mansion tax" on properties worth more than £2 million.
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.
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.
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.