In his annual budget yesterday, Chancellor George Osborne summed up his financial plan by saying that it “unashamedly backs business”. He claims his general aim is to “reward work” and sees the measures he plans on introducing as the right way to kick start the economy. So, is it a Ronseal budget in that it does exactly what it says on the tin? Or is it, as the opposition suggests, a “Downton Abbey” budget, aimed at out of touch millionaires who think they are born to rule?
The first item on the list is corporation tax, which has been falling year on year since 2010 when it was at 28%. It was due to drop from 26% to 25% from 6th April 2012, but instead it will now drop a further percentage point to 24%. At present the aim is to reduce the rate to 22% by 2014 and Mr Osborne is certainly on course to do just that. This represents a clear open invitation for investment in Britain, which will of course have the positive knock on effect of creating jobs. As the Chancellor stated, this unashamedly backs business, but it also helps the general public and will lower unemployment.
One of the areas the Chancellor hopes to find some of that money is through the new stamp duty rates. This so-called “mansion tax” will see stamp duty of 7% imposed on properties bought for £2 million or more from the previous rate of 5%, which has been in existence since 2011. The new rate comes into effect from today, 22nd March 2012. There is a further new stamp duty brought in for homes bought through companies, which will incur a punitive charge of 15%. Furthermore, residential properties owned by overseas companies will attract capital gains tax from April 2013, regardless of when they were purchased. Consultation will take place concerning the introduction of an annual SDLT charge on such properties with a view to introducing legislation next year to come into effect in April 2013. Form 21 March 2012, the SDLT rate on properties with a value of £2 million or more will be 7% if they are held personally, although the Budget did not include any plans for an annual charge for property which is owned in the taxpayer’s personal name.
Next up the Chancellor has accelerated the drive to get the tax free threshold to £10,000 by 2015 by raising it to £9,205 from 6th April 2013. It increases to £8,105 on 6th April 2012 from the current level of £7,475 and ultimately it means that low to medium earners will have at least £200 extra in their pockets each month – a move that will benefit almost 24 million people in the UK. Child benefit only withdrawn when one family member has income over £50k. Withdrawn gradually up to £60k.
Those aged over 65 with income under the threshold currently benefit from higher age-related personal allowances. To reduce complexity and move towards a single personal allowance, age-related allowances will be frozen and restricted from 2013/14. From 6 April 2013, only those born before 6 April 1948 will qualify for the 65-74 age allowance while only those born before 6 April 1938 will qualify for the age-related allowance for those aged 75 years and over.
This tax easing on the less well off has to be balanced somewhere in the books and it is in the medium to high earning bracket where the money is recouped. The point at which taxpayers start incurring 40% on earnings will drop from £42,475 to £41,450. However, even with this lowering of the 40% bracket, higher earners will have just over £40 more in their wallets each month after the effect of the increase in the tax free allowance.
One of most controversial measures introduced by the Chancellor in the budget was the reduction in the highest rate of income tax from 50% to 45% on earnings above £150,000. This is a major source of irritation for the opposition and why they have chosen to label this as a “millionaire’s budget”. Labour views this move as a way of making the rich even richer and, on a more callous level, they see this simply as a political manoeuvre.
There will be a consequential reduction in the dividend rate from 42.5% to 37.5%, so that the effective rate of income tax on dividends falling within the top rate is reduced from 36.11% to 30.6%.
The capital gains tax annual exempt amount will increase from £10,600 to £11,200 in April 2013 in line with the retail prices index.
However, if the Chancellor is right when he says that the £3 billion tax the 50% levy was supposed to secure each year amounted to only one third of that in reality, then surely changing strategy is the right move. The government is relying on that missing £2 billion and it must find a way of getting the money into the coffers. Burying their heads in the sand and hoping it turns up this year is not going to work!
Of course there are a number of other aspects to the budget such as fuel duty increasing by 3.02 pence per litre, tobacco duties increasing by 5% above inflation etc, but the measures above essentially represent the highlights from a business perspective. In essence, these policies are geared towards attracting investment into Britain and encouraging spending by the public – two areas that are vital for the economy. Mr Osborne said that the budget “unashamedly backs business” and any budget that does that unashamedly backs a better economy and ultimately the people of Britain. It also sends out a clear message – Britain is Open for Business!