It's nip 'n' tuck: Brown boosts our financial complexions

Sam Dunn reports on how savers and homebuyers fared in last week's Budget
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The Independent Online

Gordon Brown was never likely to carry out major surgery on our personal finances. Last week's Budget, his ninth as Labour Chancellor, was just weeks away from a probable general election.

Gordon Brown was never likely to carry out major surgery on our personal finances. Last week's Budget, his ninth as Labour Chancellor, was just weeks away from a probable general election.

With emphasis on a nip here and a tuck there, it was a measured approach to encourage us to manage our finances better - rather than a cash grab, or a cash giveaway.

Here is a round-up of all Mr Brown's major - and not so major - announcements. Unless stated, all changes take place from 6 April, the start of the new financial year.

Tax allowances

The thresholds of income at which we pay particular rates of tax will go up in line with inflation. So our personal allowance on which no tax is due (for under-65s) will rise to £4,895; 10 per cent will be paid on the next £2,090 up to £6,985; then 22 per cent on the next £30,310 to £37,295; and 40 per cent on anything over this.

The personal allowance for capital gains tax - payable on the disposal of assets such as a second home or a large shares portfolio - rises to £8,500.

Stamp duty

The threshold at which duty is first paid at 1 per cent doubles from £60,000 to £120,000, with immediate effect - exempting some 300,000 homes a year, said Mr Brown.

Based on a loan of £95,000 and assuming a £5,000 (roughly 5 per cent) deposit, this should save first-time buyers around £1,000, according to the Co-operative bank.

However, the change might affect only those looking in cheaper parts of the country. "It can benefit first-time buyers only in areas where it is still possible to find homes for that price," warns Richard Tucker of the estate agent network Home Sale. In London and parts of the South-east, where the cost of a small one-bedroom flat can nudge well above £120,000, it will mean nothing at all.

Inheritance tax

The threshold at which inheritance tax (IHT) is paid at 40 per cent on any estate was lifted from £263,000 to £275,000 - a rise of around 4.6 per cent and well above the usual inflation-linked increase.

In the 2006-07 tax year, this band will go up to £285,000 and then £300,000 in the year after that - again, both likely to work out as inflation-busting rises.

Mr Brown estimates that these new thresholds will leave 94 per cent of estates outside the IHT net.

However, this is nothing more than a "sop", says Clive Scott-Hopkins of independent financial adviser (IFA) Towry Law. "It is unlikely to have much impact on Middle England, where property values have enormously outstripped inflation."

ISAs

The £7,000 annual tax-free allowance for investing either entirely in equity individual savings accounts or a mix of cash (maximum £3,000) and shares is to be kept until 2010.

This follows an announcement in last year's pre-Budget report, in which Mr Brown backtracked on a previous decision to cut the overall annual allowance to £5,000 and limit popular cash ISA investments to just £1,000 a year.

From April, you will be able to invest £4,000 in a mini equity ISA if you also hold a mini cash ISA.

Pre-owned assets

The Inland Revenue - and not Mr Brown - finally published guidance last week on the taxation, from 6 April, of assets given away to reduce an IHT estate.

Yet confusion remains. As the start of the new tax year approaches, time is running out for those who have set up schemes such as putting their house into a trust.

"People still don't know whe-ther to wind up existing schemes before 6 April or prepare for a new tax charge," says Chris Whitehouse of the Society of Trust and Estate Practitioners.

Stakeholders

The Chancellor announced a £4m "fighting fund" to promote the flagship stakeholder savings schemes that go live from 6 April. These four products comprise a child trust fund, pension fund, medium-term investment fund and cash deposit account.

Industry take-up has been lukewarm, but the Government is keen that the products catch on to foster a savings habit - and cut future welfare bills.

Child trust funds

A third payment into the fund, available to all children born on or after 1 September 2002, could be introduced at secondary school age. The size of the payment is up for consultation.

This will be on top of the original £250 voucher that will be invested from 6 April this year, and a second proposed payment of £250 (or £500 for low-income families) at age seven.

Child tax credit

Paid out to families whose combined income is no more than £58,000 (although those near this limit receive very little), the child tax credit is to be raised in line with average earnings growth over the next three years. This increase works out at around 13 per cent over that period.

Pensioner power

As well as free bus travel for the over-60s from April 2006, there was a £200 council tax rebate for households with at least one person over 65 years old. Payment will be in the winter.

Reits

Touted as a way for ordinary investors to invest money in commercial property, legislation on real estate investment trusts is now expected in the 2006 Finance Bill. Plenty of consultation is pending, however, looking at tax transparency and the amount that such funds will be able to borrow.

Orphan assets

The billions of pounds of forgotten assets lying in UK banks are to be another subject of consultation. A plan for action - and an accurate figure - will hopefully be in place by the time of this autumn's pre-Budget report.

The Government is looking at either reinvesting some of the money back into "society", or finding a way to reunite the cash with its owners.

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