The weather has been more like summer than early spring and many people have been out enjoying themselves, probably unaware that this week the tax year ends and starts again. For many this event is not that important but given that the Budget was just a few weeks ago, the changes confirmed in that statement will affect many people and some will not feel like celebrating but will feel the distinct chill of winter.
There was good news for those who are basic rate tax payers as the basic rate band was extended by £630, and we found out that next tax year the personal allowance will increase to £9,205. This is good news that won't be shared by those subject to higher rate tax but perhaps the biggest surprise because it was one of the few things that was not leaked, was the so called "Granny Tax".
This change will see those over 65, who previously enjoyed a higher personal allowance, if their income was below £24,000 for 2011/12 (£25,400 for 2012/13), now see this allowance frozen. The allowance will remain frozen until the increasing personal allowance for those under 65 catches up. This amounts to a real increase in the tax due from these taxpayers. It was also the confirmed that the 50% rate that was seen by many in business as stifling growth in business would be cut to 45%, a rate seen as more acceptable.
Those taxpayers who are hit by this lowering of the basic rate band must continue to think about ways they can perhaps share their investment and other income with their spouse or civil partner, who are perhaps subject to tax at a lower rate. On top of this, those who were receiving the child element of the tax credit, which in the last tax year was lost from £40,000, will now see this ebb away like all other tax credits at 41% so anyone earning over £24,000 will lose this credit.
As previously announced there was no increase in the annual exemption for Capital Gains Tax so it remains at £10,600 for this year. Furthermore, the rates remain unchanged at 10% for qualifying business sales increasing to 18% for lower rate taxpayers and a top rate of 28% for those earning more than £34,470. Those with disposals to make in the next tax year should continue to split any asset sales with their lower rate taxpayer spouse or civil partner, if this is appropriate.
Inheritance Tax (IHT) also remained unchanged with the nil rate band staying firmly rooted at £325,000 with no change until 2015 at the earliest. The Chancellor did confirm the introduction of a reduced IHT rate to 36%, “if you leave 10 per cent or more of your estate to charity”. Whether this will encourage charitable giving remains to be seen but it is certainly a move in the right direction.
So Happy New Tax Year to you all, there’s something affecting most people it’s just that not all of it is worth celebrating!
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