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2011 is nearly over and now is the traditional time to look back and review some of the highlights and, indeed, disappointments of the year.
In tax terms, the year started with a bang. The main rate of VAT was increased from 17.5% to 20% last January. This was good news only for those who prefer to work out the VAT in their heads. It gave an immediate boost to most prices in an attempt to plug some of the gap in our public finances. That inflationary effect may well be temporary of course - we will find out once the January 2012 figures are announced in the New Year. The tax rise is undoubtedly meant to be permanent, however.
If you want to look on the bright side you could take note of the fact that in the Republic of Ireland the main rate has just been increased to 23%. So it could be worse!
On the Income Tax side the major changes were introduced in April as usual. There were significant beneficiaries at the bottom of the income scale with personal allowances being increased by £1,000 as part of the commitment to raise the threshold to £10,000 before 2015. More people have become higher rate taxpayers, however, as the limit for the 40% band was cut – in part to pay for the increase in allowances.
The economy remained stuck with very weak growth. Interest rates were kept low but there was no sign of any significant recovery. The prospect of higher interest rates seems some way off which will undoubtedly hit the pockets of those reliant on savings for income.
Inflation at around 5% fuelled by domestic factors like VAT and higher commodity prices abroad means that the real value of savings is frequently being eroded.
Of course, we are not the only economy with these problems and, indeed, the concerns of the markets have been focused elsewhere in Europe for most of the year. That has perhaps masked some of the issues at home but, worse than that, it has meant that our economy has not been able to rely on being led out of its present difficulties by exports to growing markets elsewhere. That has been the strategy of successive British Governments in difficult times in the past but it is looking more problematic today.
All in all it has been a pretty gloomy year economically and the financial crisis means that those looking for tax cuts are likely to be disappointed.
Indeed the speculation in the tax world centres more on tightening of tax loopholes rather than new tax breaks.
With both property and share values being relatively depressed, it is almost certainly a good time to plan ahead. Investments can often now be changed without incurring Capital Gains Tax. For Inheritance Tax, a gift when values are low is counted at that value even if the property rises in value later on.
2011 has not been a memorable year but, as it draws to a close, we should all take a long hard look at our finances and plan for the future. Make that your New Year resolution for 2012.
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