Budget 2014: At a glance
Chancellor George Osborne has delivered his fifth annual Budget. Read our summary of the key announcements.
• Deficit currently down by a third to 6.6% of borrowing; down by half by the end of 2014. No defecit at all by 2019.
• Britain has "borrowed too much, saved too little". Borrowing to reduce to £44 billion by 2016/17. Small budget surplus expected by 2018/19.
• Growth of 2.7% now forecast for 2014; 2.3% in 2015; 2.6% in 2016; 2.6% in 2017; 2.5% in 2018.
• Earnings to grow faster than inflation in this and the next two years.
• From 1 July, cash Isas and stocks and shares Isas are being merged, with savers able to switch either type into the new account. The limit is also being raised to £15,000.
• The Junior Isa limit is being raised to £4,000 a year.
• 10p income tax rate on savings abolished.
• Tax restrictions on access to pension pots removed. Pensioners can draw down as much or as little of their pot as they want: no caps, no limits.
• No-one will have to buy an annuity.
• "Right to advice" plan in the works.
• Huge reform of the taxation of pensions.
• Personal income tax allowance raised to £10,500 in 2015 (it will rise to £10,000 on 6 April this year).
• Fuel duty rise planned for September to be abolished.
• Fixed-odds betting terminals to face raised duty of 25%.
• Tobacco duty will continue to rise by 2% above inflation; alcohol duty escalator scrapped - they will rise in inflation, except for Scottish whisky where duty is frozen. Also West country cider-makers see duty on ordinary cider frozen. Beer duty CUT by 1p.
• HMRC's budget increased to combat tax avoidance.
• Bank accounts to be raided by HMRC if people have the ability to pay tax, but haven't.
• Inheritance tax waived for those in the emergency services who die in the line of duty.
• Help to Buy being extended to 2020, as predicted.
• New homes to be built across the South East, where they are needed, including 15,000 in Ebbsfleet, creating a new garden city.
• Over 200,000 new homes for families.
• Additional £140 million promised to repair damaged flood defences and £200 million to tackle Britain's growing pothole crisis.
Public sector pay and pensions
• Taxpayer savings of £1 billion from revamp of public sector pensions.
Business and work
• Over 100,000 new apprenticeships to be supported.
• SEED enterprise investment scheme to be made permanent.
• Business annual investment allowance doubled to £500,000 and extended to 2015.
• Boost for British manufacturers, including reduced energy bills (below).
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
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 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.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
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.
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).
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.