Prudently populist: the treats and the takeaways delivered by Gordon Brown
There were no radical reforms from the prime-minister-in-waiting. But from newborns to grandparents, what he had to say affects all of us
Sunday 26 March 2006
A barnstorming Budget, this wasn't.
With one eye on No 10 Downing Street, Gordon Brown chose to apply the soft touch rather than light the blue touch paper. With a tweak here and twist there, it was a Budget that hit the pockets of drivers of gas-guzzling 4x4s with higher road tax, while cutting the rate to zero for the tiny number of cars with the lowest carbon emissions.
Other populist measures included confirmation of an extra £250 payout for the child trust fund (see page 25) and, from April 2008, free bus travel anywhere in England for the disabled and those over 60 (free travel currently depends on your local authority).
However, although the Chancellor has given, he has also taken away.
Last year's £200 pre-election council tax payment for pensioners was dropped, as was a valuable tax perk on home computers sold through employers. Hun-dreds of thousands of people have bought equipment straight out of their gross monthly salary - paying no income tax or national insurance on the purchase. This concession, it was argued, benefited too many higher-rate taxpayers.
Those who have already bought the computers will be unaffected by the move. Money will instead be chan-nelled towards provision of free internet access to all.
Below we look at some of Mr Brown's other announcements likely to have an impact on your finances.
From 2008, the current 31 January deadline for self-assessment tax returns will disappear. For those who file returns on paper, the date will move forward to 30 September; by internet, it will be 30 November.
Francesca Lagerberg at accountants Smith & Williamson says: "This is all about a push towards encouraging us to file returns online. The extra two months is the carrot to do so." She adds that the tighter deadlines will put pressure on financial services companies to get customers' records (the value of dividends from shares, for example) to them much more swiftly than in the past.
You'll still have to pay all your tax by the same 31 January cut-off, though.
Mr Brown raised the stamp duty threshold by £5,000 to £125,000. Critics point out that this is still below the average house price for first-timers (£135,742).
A £970m allocation was announced for shared-equity schemes, aimed at encouraging home ownership among the lower paid. Typically, these schemes let you borrow 75 per cent of the cost of a home in the usual way from a lender; the rest is loaned to you from the Government via the lender, interest-free. When you sell, the Government takes 25 per cent of the proceeds.
So far, only three lenders have signed up to the scheme: Halifax, Nationwide and Yorkshire building society. Their "Homebuy" deals should be on the market from October.
Mr Brown cleared up new rules for A-Day (6 April), when pensions become more flexible. Savers aged 75 or over who refuse an annuity and instead buy a new Alternative Secured Pension (ASP) deal will not be able to pass on their fund without a potential 40 per cent inheritance tax (IHT) charge. This will be paid for by the deceased person's pension fund, not by the beneficiary. Those under 75 in an ASP can generally continue to pass on pensions without IHT. (Pensions left to spouses and civil partners are not liable in any case.)
There was also a minor change to rules for "recycling" pension cash. It will still be possible to take your tax-free cash entitlement from one pension and put it into another to generate extra tax relief. However, a limit of 30 per cent will be placed on tax-free cash sums taken out for recycling.
Mr Brown introduced new tax charges on two types of trust that are likely to hit wealthy families.
Rules governing "accumulation and maintenance" (A&M) and "interest in possession" (IIP) trusts have been brought into line with their more common alternative, discretionary trusts. Transfers of over £285,000 into a new A&M trust will now be liable to a 20 per cent tax charge at the point of opening and a 6 per cent charge after 10 years. A trust exit fee will be payable too.
A&M trusts are popular with grandparents passing on assets, as they retain control until grandchildren reach the age of 25. Under the new rules, the only way to avoid these charges is to allow the beneficiaries to get hold of the money at 18.
In addition to extra money for child trust funds, the Chancellor announced an above-inflation increase in part of the child tax credit (14 per cent over three years). The allowance for tax-free childcare vouchers - available through work to help pay for nursery fees - rose by £5 to £55 a week.
Income tax and allowances
From 6 April, our personal allowance (for the under-65s) rises to £5,035. Tax at 10 per cent will be payable on the next £2,150, then the basic 22 per cent rate up to £33,300. Any income above this is taxed at 40 per cent.
The threshold for capital gains tax, payable at up to 40 per cent (on the sale of a second home, for example), rises to £8,800.
As for IHT, also payable at 40 per cent and the subject of much middle-class resentment, the Chancellor said he would lift the threshold to £325,000 by 2009. From 6 April it applies on any estate over £285,000.
Income tax relief on venture capital trusts has been reduced from 40 per cent to 30 per cent.
There was no change to the individual savings account (ISA) allowances.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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