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Budget 2010

Tax | Inheritance Tax

By Justin Modray, published 24 March 2010.
Helpful? 0

With an election imminent it’s little surprise that Alistair Darling used today’s Budget to dig his taxation claws further into the wealthy and put off any unpleasant announcements affecting everyone else.

Whichever party gets into power more tax rises are almost inevitable, but for now it’s the wealthy who’ll pay; via a new rate of stamp duty and frozen pension allowances. Otherwise there was some mildly good news for individual savings accounts (ISAs) and first time buyers of properties up to £250,000.

The main announcements were as follows:

Individual Savings Accounts (ISAs)

The annual ISA allowance will be linked to inflation (measured by the Retail Price Index) from 2011/12. While it’s a positive move, increases will be threatened if, as more and more are predicting, deflation (i.e. negative inflation) comes home to roost. The September 2010 RPI figure will be used to calculate the 2011/12 allowance, so there’s a good chance this allowance will rise, if not thereafter for a while. Any increase will be rounded to the nearest £120, so if September 2010 RPI is 3.7% (the current level) the 2011/12 allowance would rise from £10,200 to £10,560.

Stamp Duty

The threshold at which stamp duty on residential property kicks in for first time buyers will double from £125,000 to £250,000 over the next two years, potentially savings homebuyers up to £2,500 in tax. Will this re-ignite the housing market? I’m not convinced. Property sales over 2009 were under half those in 2007, suggesting many potential sellers are holding off in the hope that prices rise and potential buyers are struggling to get funding and/or waiting for prices to fall. Until sellers wake up to the fact house prices were at unsustainable levels, I doubt we’ll see much change.

The introduction of a 5% rate from 2011/12 on properties costing over £1 million will increase tax on such purchases by at least £10,000. While unlikely to trouble the wealthy, it’s another firm signal that Labour intends to continue its Robin Hood tactics of taxing the rich to avoid (or defer) tax rises for everyone else.

Pensions Lifetime & Annual Allowances

The annual and lifetime pension allowances are to be frozen for five years at 2010/11 levels of £255,000 and £1.8 million respectively. Up until now these had been increasing each year, so the freeze spells bad news if you have a very large pension fund; it’s potentially a tax on investment performance. While this won’t lose many votes, it gives wealthy individuals another financial disincentive to remain in the UK.

Inheritance Tax

The inheritance tax threshold, or nil rate band, will be frozen at the current level of £325,000 until 2014/15. If house prices remain flat or fall the impact for many may not be so bad, but any rises will leave yet more people vulnerable to this most unfair of taxes.

Capital Gains Tax

The rate of capital gains tax remains at 18%, which I find surprising given the imminent arrival of the 50% top rate of tax. This will surely increase demand for fairly cautious capital growth investments from top rate taxpayers eager to take advantage of the diferential.

Annual Investment Allowance

The Annual Investment Allowance will double to £100,000. This is good news for business owners, as it increases the amount of capital expenditure they can offset against tax in the year spent rather than over a period of years via the capital allowances system.

Entrepreneur’s Relief

Business owners will also welcome the doubling of the entrepreneur’s relief allowance to £2 million, whereby gains are subject to a capital gains rate of 10% and not the usual 18%.

Savings Gateway

Savings Gateway accounts will be introduced in July 2010 for those in work on low incomes. For every £1 they save over a two year period the Government will add 50p at maturity. This is an excellent idea to get those on low incomes into the savings habit, assuming they can afford to.

Basic Bank Accounts

The Government plans to give everyone the opportunity of opening a basic bank account. While I hope encouraging more people to open a bank account will also encourage greater financial responsibility, I fear more bank accounts will simply mean more marketing opportunities for the banks to saddle customers with expensive and potentially unaffordable debt.

Alcohol & Cigarettes

Duty on alcohol is rising by 2% above inflation on 29 March 2010, adding 2p to price of a pint of beer, 10p to a bottle of wine and 36p to a bottle of spirits. Cider drinkers are the hardest hit, with a 10% rise above inflation adding 9p to a 75cl bottle of sparkling cider. The duty on a pack of 20 cigarettes is rising by 15p today.


A fuel duty increase of 2.76p per litre on 1 April 2010 will be spread over three instalments: 1p on 1 April 2010, 1p on 1 October 2010 and 0.76p on 1 January 2011.

Air Passenger Duty

Bad news for frequent flyers as Air Passenger Duty will rise across the board from 1 November 2010. The lowest rate of £11 will rise to £12, while the highest rate of £110 will rise to £170.

All in all it’s a fairly muted Budget. Any bad news for the majority, of which I’m sure there’ll be plenty, is obviously being stored up until after the election.

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