New tax and benefit changes are coming into effect--some of them immediately--which will directly impact how much money you can keep for yourself and how much will be taxed away by the government. The changes are wide reaching and will impact everything from the income tax you pay, to VAT rules, to taxes on homes and cigarettes. These changes were announced by Chancellor George Osborne in the House of Commons this afternoon.
Here are some of the more interesting changes announced by Osborne:
- The top income tax rate for high earners will be reduced from 50% to 45% starting in April 2013. Osborne explained that the high tax rate of 50% was unsustainable because too many high earners were dodging taxes, which was causing distortions to tax collections.
- A new stamp duty land tax rate of 7% will be introduced starting tomorrow for residential properties over £2 million. Plus, the stamp duty land tax charged on residential properties that cost over £2 million that are bought into a corporate envelope will be increased to 15% starting today. These stamp duties are being introduced to ensure richer individuals who are buying properties cannot dodge taxes. Osborne explained: “If you buy a property in Britain, then we will expect stamp duty to be paid... I will not hesitate to move swiftly if inappropriate ways around these rules will be found.”
(Osborne says five times more money will be collected from the wealthiest in our society by lowering income taxes for high earners and raising tax on pricey homes.)
- The income tax personal allowance, which is the amount you can earn before you pay tax, will increase to £9,205 starting in April 2013. The goal is to eventually let people have a personal allowance of £10,000.
- For the 2012-2015 tax year, taxpayers will receive a new personal tax statement that will explain how much tax and national insurance they have paid and how the government is spending their money.
- Income tax reliefs that aren't already capped will be capped at £50,000 or 25% of income, whichever is higher. The HM Treasury issued a release saying, “this will help ensure that those with the highest incomes pay their fair share.”
- Child benefits will be gradually withdrawn when someone in a household is earning more than £50,000; 1% of child benefits will be withdrawn for every extra £100 earned over £50,000. Then once a person is making an income of more than £60,000, they will lose their entire child benefit. Osborne explained that this will be put in place “so there’s no cliff edge” for people who begin earning more money.
- Duty on tobacco will rise by 5% above inflation starting at 6PM tonight. That rise of 5% works out to a rise of 37p on a pack of cigarettes.
- The current pension system will be simplified in 2013. Currently pensioners can receive a state pension as well as their basic pension, but future pensioners will receive only one single-tier pension, based on contributions. This is currently estimated at around £140.
- There will be an automatic review of the state pension age to ensure it keeps pace with increases in life expectancy. Details of how this will work will be published over the summer, but that means you can expect a later retirement.
- The national minimum wage will increase by less than inflation.
- Sunday trading laws will be relaxed during the Olympics and Paralympics. This means stores will have longer opening hours for eight weeks, starting on July 22, 2012.
- Corporate taxes will be lowered. The main rate of corporation tax will be reduced from 26% to 24% in April 2012. In April 2013, it the rate will be lowered to 23%. In April 2014, the rate will be lowered to 22%.
- The VAT tax system will be altered slightly, ensuring similar products are not taxed differently.
To learn about some key experts' reactions to the Budget, read "Reactions to the 2012 Budget".
