Personal Allowances & Income Tax rate limits
The basic rate of income tax and the higher rate of income tax remain at 20% and 40% respectively. The 50% rate of income tax will still apply to income over £150,000. For individuals with income over £100,000, the basic personal allowance will be reduced by £1 for every £2 of income over £100,000, irrespective of age. Therefore, for individuals with taxable income over £114,950, no personal allowance will be available.

The personal allowance will increase from £6,475 to £7,475 from April 2011. This will increase further from April 2012 to £8,105.

From April 2011 the basic rate limit will be reduced to £35,000. This will decrease further from April 2012 to £34,370. This decrease has been introduced to ensure the tax relief gained by the increase in personal allowance is restricted to lower rate tax payers only.

State Pensions
George Osborne signaled an intention to introduce a single state pension worth around £140 a week to new pensioners and a new, more automatic, way of raising state pension age, which could reach 70 by the middle of the century.

Income Tax & National Insurance reform
The Government has announced that income tax and National Insurance Contributions (NICs) should be merged in a ‘historic step’ to simplify the tax system.

It will take many years to achieve this. There will be a period of consultation on the options, stages and timing of reforms to integrate the operation of income tax and NICs.

Tax Credits
There were no new announcements relating to tax credits in the 2011 Budget, but important changes are taking effect on 6 April 2011 and we now have some information on the fundamental changes which will take place from 2013:

• In brief, families on low incomes will be slightly better off as the child element of Child Tax Credit is increasing by £255 per child.

• The taper rate is increasing from 39% to 41% which means families on average earnings or above will be worse off.

• Families with incomes between £41,329 and £50,000, who currently receive £545 per year of Child Tax Credit, will lose their entire award in most circumstances.

• Overpayments of tax credits are inevitable as awards are initially based on the income of the previous year and then finalised once actual income is known. The number and size of repayments has been minimised by way of an “income disregard” whereby tax credits are only repaid if income increases by more than this amount, which is currently £25,000. This is reduced to £10,000 for 2011/12 and will mean that the number of repayments will increase dramatically.

• There are a number of further changes which take effect from April 2012 which will remove many more families who currently receive £545 per year from the tax credit system.

• The entire State benefit system is being reformed with the introduction of the Universal Credit. Starting in 2013 the Universal Credit will replace tax credits and numerous other State benefits. Existing claimants to tax credits will be transferred to the new system between 2013 and 2017. The new system will be administered by the Department of Works and Pensions rather than HM Revenue and Customs, and it is likely that it will be strictly means tested with anyone who has capital in excess of £16,000 not being eligible for Universal Credit.

Inheritance Tax
It has been confirmed that the Inheritance Tax (IHT) nil rate band of £325,000 is frozen until April 2015. The rate of IHT remains at 40%.

It has also been announced that from April 2012 a reduced rate of IHT of 36% will be introduced where 10% or more of the estate is left to charity.

Sin Taxes
Beer up 3p a pint, wine by 13p a bottle and cigarettes up 33p per pack.

Posted By Emma - 2011-03-24.
Tags: Tax