BUDGET 2011
Most of the changes that start in the new tax year in April 2011 were set out in George Osborne’s emergency Budget last June. This week’s Budget was mainly concerned with tax and National Insurance changes from April 2012. But some will begin at once.
Fuel prices
Duty on a litre of petrol and diesel was cut by 1p from 6pm on Budget evening.
The Chancellor also postponed the rise in duty due on 1 April. That would have
added about 4p a litre in duty and another 1p a litre in what is called the fuel
escalator. That was supposed to be a green tax to discourage us from using fuel
and would have added another penny every April until 2014. It has now been
abolished. However, the inflation rise has only been postponed – until 1 January
2012. And another inflation scheduled for April 2012 has been delayed until 1
August 2012. By the time both are in place in 18 months the tax on a litre of
petrol or diesel will be 5p more than it was before the Budget – and 6p more
than it is today. These changes will cost around £2 billion a year.
Income tax
The starting point for income tax for those under 65 will be raised by £630 to
£8105 from April 2012. That is on top of the £1000 rise for the under 65s this
April. This increase is not as generous as it seems. The threshold would have
gone up in line with inflation by £390. So the extra rise is just £240. That is
a cut in tax of just £48 a year or 92p a week – the price of two first class
stamps (which go up to 46p on 4 April). Higher
rate tax will start in 2012/13 at the same income as it does this year, £42,475.
The levels of the higher age allowances given to those aged 65 or more have not been announced. But they will rise by inflation which will add about £500. Exact amounts will be announced in December.
State pension
The Chancellor said for the first time that he is in favour of moving to a
higher flat rate state pension of around £140 a week. He confirmed people would
still need to have paid National Insurance contributions to get it and that
anyone who reaches pension age before the new pension begins will be excluded
from it. No date was given for the change nor even for the publication of the
paper setting out the plans in detail.
Inheritance tax
The threshold for Inheritance Tax is currently frozen at £325,000 until
2014/15. When that freeze ends it will go up once more with inflation. But the
Government is changing the inflation measure it uses from the familiar Retail
Prices Index (RPI) to the Consumer Prices Index (CPI). That could reduce the
rise in 2015/16 by about £5000 as the CPI is almost always lower than the RPI.
Another major change in Inheritance Tax will apply to anyone whose estate is above the IHT limit and who leaves at least 10% of the taxable amount to charity. The Government will reduce the rate of tax on the balance from 40% to 36%. The new rules will apply to any death from 6 April 2012 and there will be consultation over the next few months on the details.
Indexation
The threshold for paying capital gains tax will rise with inflation to £10,600.
But from 2012 it will be raised by the CPI rather than the RPI. Ultimately the
Government wants to change to the CPI for all allowances and thresholds, though
that will not happen until 2015/16 for many of them. However it is keeping the
RPI link for duties on alcohol, tobacco, and fuel as that makes sure it raises
more revenue. Alcohol and tobacco duty will rise by 2% ahead of RPI inflation
for the next few years.
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