THE Chancellor delivered a mini-Budget against a tide of continuing economic woe with the intention of stimulating sustained growth.
For those aged under 65, the amount they can receive tax-free will increase as the personal allowance is to rise from £8,105 to £9,440 from April, 2013.
This increase is greater than previously announced and is part of the Coalition Government’s plan to raise the allowance to £10,000.
As previously announced, the higher age-related personal allowance will not be increased and its availability will be restricted to people who were born before April 6, 1948, leading to accusations of a so called “Granny Tax”.
The gradual withdrawal of the personal allowance for those with income above £100,000 will continue and from April, 2013, the allowance will be lost where income exceeds £118,880.
The marginal rate of tax for those with income in this band can be as high as 60%.
The basic rate of tax remains at 20% although the band of income taxed at this rate will fall from £34,370 to £32,010, which is likely to mean many more individuals paying tax at 40%.
The rate of tax on income above £150,000 is being reduced from April, 2013, from 50% to 45% (42.5% to 37.5% on dividend income).
Tax-savings will be available if an individual is able to defer income until after April 5, 2013.
The maximum amount of tax relievable savings an individual can make towards their pension is to be reduced from April, 2013, from £50,000 to £40,000 per annum while, at the same time, the lifetime allowance is to be reduced from £1.5m to £1.25m. Although these reductions will not affect the majority, it may be useful to review one’s pension contributions in light of the above mentioned tax changes to ensure payments are timed to obtain the highest relief available.
Indeed, the use of pension contributions may play an important role from January, 2013, for those with children who face a loss of the Child Benefit where their income exceeds £50,000.
Since the Coalition Government came to power, there has been a gradual reduction in the main rate of Corporation Tax for companies with taxable profits in excess of £1.5m.
Successive reductions have seen the rate fall from 28% to what will be 23% from April 1, 2013.
The proposed rate reduction to 22% from April, 2014, will now instead be 21%.
The tax rate for companies with taxable profits below £300,000 will continue to be 20%.
For shareholders in private limited companies, the payment of dividends instead of bonuses will be more attractive than ever.
In a surprising but welcome announcement, the amount a business can immediately write-off against profits by investing in plant and machinery is to be increased from £25,000 to £250,000 from January 1, 2013. The increase will be for a two-year period.
Those businesses planning significant capital outlay over the next few months should carefully consider the timing of their expenditure so as to maximise the tax relief available, particularly where their accounting period straddles January 1.