There were few surprises in George Osborne's third Budget but a few nasty shocks for pensioners, bankers and smokers. Read on for a summary of the measures announced by George Osborne and reaction to the Budget 2012.
50p income tax rate cut to 45p
George Osborne confirmed the 50p income tax rate on individuals earning more than £150,000 introduced in April 2010 would be cut to 45p from April 2013. The chancellor criticised the Labour policy after he revealed it had raised around a third of £3 billion it had been expected to generate.
Personal allowances raised by £1,100
Osborne’s plan to increase the personal allowance by £1,100 to £9,205 as of April 2013 was the coalition’s flagship policy for this Budget. The government was committed to further increases and was within ‘touching distance’ of an £10,000 allowance, according to Osborne, who claimed this measure would benefit 24 million individuals and would lift two million people out of paying tax.
Freezing age related allowances will cost pensioners £1.2 billionThe chancellor announced plans to phase out age related tax allowances which was branded a ‘stealth tax’ by Ed Miliband after it emerged it would cost pensioners £1.2 billion.
Age related allowances will be frozen at 2012/13 levels of £10,500 for those born between 6 April 1938 and 5 April 1948, and £10,660 for those born before 6 April 1938 as of 6 April 2013.
The chancellor steered away from widely the discussed policy of limiting pension contributions for higher rate earners but confirmed that the government will introduce a £140-a-week state pension which will not be subject to means testing.
Stamp duty land taxStamp duty land tax on residential property worth more than £2 million will jump to 7% from the current rate of 5% for homes valued at over £1 million. The chancellor also imposed a 15% rate on residential properties valued over the £2 million limit which were owned by companies in a move to combat a common tax avoidance scheme.
Osborne threatened further action against individuals who continued to try and avoid stamp duty tax.
Caps on income tax reliefsThe government will put a cap on individuals claiming income tax reliefs which could cause a major shake-up of tax planning for high-net-worth individuals. Individuals who claim more than £50,000 of reliefs will face a cap set at 25% of their income, said Osborne.
The cap will not apply to Venture Capital Trusts, Enterprise Investment Scheme or pensions tax relief.
Corporation tax cut by 1%Government will cut the main rate of corporation tax to 24% in April with the intention of cutting it to 22% by 2014.
Osborne also proposed extending tax relief for video game and the TV production sector and simplifying the tax system for small firms with turnover of up to £77,000.
New anti-avoidance rules agreedThe Government will introduce a general anti-avoidance rule after Osborne branded tax evasion and aggressive tax evasion ‘morally repugnant’. The Aaronson report, which recommended that the anti-avoidance rule should only apply to most ‘outrageous’ cases of tax planning, will form the basis of proposals which will be incorporated into the Finance Bill 2013.
Tax clampdown on life policy and annuity allowance HMRC plans to target the use of clusters of life policies and annuities with new measures unveiled in the Budget. Cluster bonds allows clients to access cash before the end of its term by redeeming segments leaving all the taxable gain on the final segment of the policy.
HMRC closes property-based IHT avoidance schemeThe government plans to tackle individuals using offshore trusts and settled property to avoid inheritance tax. The planned measures will prevent UK domiciles from acquiring interests in settled property via offshore trusts with the purpose of reducing the value of their estate.
Government caps MIPs contributions at £3,600The government plans to introduce a £3,600 annual limit on payments into qualifying savings policies, including maximum investment plans (MIPs). Qualifying savings policies were a popular savings vehicle in the 1980s and have had a resurgence in interest from investors following the introduction of the £50,000 limit on pension contributions.
Levy on non-domiciles boosted to £50,000The annual levy on non-doms who live in the UK for 12 years will increase to £50,000 under government plans. The increase from the £30,000 levy introduced by Alistair Darling in 2008 will prove controversial after the number of non-doms registered with HMRC fell by 16% in the last two years.
Child tax benefit cut curbedOsborne has relaxed his plan to restrict the availability of child benefit to avoid ‘cliff edges’ which would have punished high earning single parents. The new rules will mean that child benefit will be reduced gradually when someone in a household earns £50,000 with the cut off set at £60,000.
Bank levy increasedThe bank levy will increase to 0.105% from January in a move by Osborne to ensure that banks do not benefit from plans to cut corporate tax.
