Budget 2012: Are you a winner or loser?

By Ben Salisbury

Budget 2012 – What does it mean for you?

The two biggest announcements made by the chancellor were the increase in the personal allowance from £7,475 now to £8.105 from April 6th 2012 and again by a record £1,100 to £9,205 to take effect from April 6th 2013 and the cutting of the 50p tax rate to 45p from April 6th 2013.

Winners and losers

In the main, individuals and families on lower incomes, below the average of £25,000, will be better off.

A couple with one person working, earning £25,000 before tax with two children will see an increase of £442 in their net income next year. A couple earning the same amount through two people working on low incomes, with two children, will see a £614 increase in net income.

If both partners in a family with two children worked, earning £25,000 each, there would be a net increase in the household income of £344.

For higher earners in a family there are differences in the budget depending on whether one or two high incomes are coming into the household.

If there is just one person earning in a household with two children they are better off, a winner from this budget, until they receive £75,000. However, for two people earning, the household income can reach £125,000 gross before they become net income losers in this budget.

For single or married people with no children the situation is straightforward. You are a winner from budget 2012 until you get to £125,000, even then you will only lose out by £80 net, annually, even if you earn up to £500,000.

Pensioners aged 65-74 who are single will benefit until they earn £125,000 when they will see a fall in net income of £126. The situation is not dramatically different for a married retired pensioner who is aged over 75. They will benefit by £255 net if their income is £25,000, this falls to a net increase of £142 if they earn between £50,000 and £125,000 before falling after that.

Personal allowance

The increase in the personal allowance from £8,105 to £9,205 will put an extra £220 take-home pay into the pockets of basic rate taxpayers. The Chancellor estimates this will be worth £170 annually after inflation. The benefits are significantly reduced for higher rate taxpayers who will benefit by around a quarter compared to basic rate taxpayers.

In total the increase in the personal allowance from £7,475 to £9,205 over the next two tax years will give basic rate taxpayers and exyta £300 annually.

50p tax rate

The 50p tax rate affects 320,000 individuals in the UK. The Chancellor explained that the report commissioned by HMRC and the Office for Budget Responsibility (OBR) showed that the 50p tax rate bought in only a third of the tax receipts expected.

The OBR says that the net cost of lowering the 50p rate of tax to 45p will be £100 million.

Wales and regional England

The decision by the government to review national pay rates and possibly replace them with regional pay rates could affect the salaries of many public sector workers in areas such as Wales and North-East England that have a higher proportion of public sector workers.

VAT

VAT is to be introduced to some new products which will have a detrimental affect on specific businesses and consumers. For the first time VAT is set to be introduced on sports drinks such as Lucozade. If you are a self-employed hairdresser renting a chair from another premises, you will have to pay VAT on te chair from October 1st 2012. Another area to have VAT imposed on it is the sale of rotisserie chickens from supermarkets and hot food from bakeries which will clobber a UK success story of the recession, Greggs the bakers.

Property taxes

The Chancellor will pay for the loss in tax receipts from the raising of the personal allowance by increasing property taxes through Stamp Duty increases on the sale of properties valued higher than £2 million. This will rise to a land duty tax rate of seven per cent but in order to stop tax evasion, it will increase to 15 per cent for properties bought by or through companies.

Pensioners

Pensioners are perhaps the biggest losers because the age-related allowance will no longer increase with inflation and it is to be phased out for people who receive 65 after 1948. Pensioners will pay slightly more tax as a result of this budget.

The current system of age-related allowances has been in place since being introduced by Winston Churchill in 1925. The decision to phase it out will bring tax allowances for pensioners in line with those of working people.

The Treasury admits that pensioners will now be £80 a year worse off and that Mr Osborne's decision will raise £1 billion a year for the Treasury.

Child benefit

The Chancellor has made some concessions to previous plans on child benefit. Child benefit will be phased out for incomes at £50,000 gradually and any individual earning £60,000 or more will lose all the benefit. Families with one higher rate taxpayer earning above £60,000 with three or more children will be the biggest losers from this measure.

Motorists

Motorists are already paying a record amount for petrol and diesel. The deferred 3p increase in fuel duty will still go ahead in August. There were no more increases or cuts announced today but vehicle excise duty will go up in line with inflation.

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Corporation Tax

Corporation Tax will be reduced to 24p from April 2012 not to 25p as had previously been announced. There will be further one penny cuts in the next two years. Corporation Tax will be 24p in 2013 and 22p in 2014. Mr Osborne gave a strong indication that he wants to get Corporation Tax down to 20 pence in the future.

Tax relief

The annual limit on tax-free pension contributions was not cut as had been widely predicted but tax relief on pension contributions for higher earners will be cut. This will fall from 50p to 45p due to the changes to the 50p rate of tax.

Tax avoidance

The Chancellor announced measures to increase tax receipts by clamping down on tax avoidance to result in an extra £4 billion in tax revenue flowing into the Treasury.

Paul Roberts, Head of Tax Investigations at Grant Thornton said: "Today's Budget announcement included the intention to remove cash flow advantages from users of avoidance schemes who do not have to pay the tax or interest accruing while their appeal is going through the Tax Tribunals and the Courts. It is designed to make entering such arrangements less attractive. Users of such schemes will be left in no doubt that they will not be better off by dragging out the appeal process.”

A new general anti-avoidance rule is being introduced in 2013.

Non doms who live in Britain for 12 years will; have to pay a £50,000 charge, though this can be offset by tax relief for those who invest in the UK.

Cigarettes and alcohol

Smokers will face an increase of five per cent above the rate of inflation, increasing the cost of a packet of 20 cigarettes by 37p. Alcohol duty will rise by two per cent above the level of inflation.

Tobacco companies are describing themselves as big losers in the budget and say that tobacco smugglers have received a big boost from the increase in tobacco duty.

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