What the Brown Budget means to you

David Prosser assesses the pre-election package from the Chancellor

Will Gordon Brown's populist Budget be sufficient to repair the damage done to Labour's election chances by the loss of trust over Iraq? Until polling day, there is no way of knowing for sure. In the meantime, this Budget will make a genuine difference to many people's finances.

In the main, the measures announced by the Chancellor on Wednesday were good news for individuals and families - overall gains of about £250m paid for by business, particularly oil companies.

Some of these gains will be used to pay for obvious pre-election giveaways. But in addition to goodies such as free bus passes for pensioners and a rise in the stamp duty thresholds, Brown's Budget included a series of more surprising measures that will affect different sections of society.

THE KEY POINTS

Pensioners are the most obvious winners from the Budget. But read the small print carefully. The £200 council tax rebate in the next tax year applies for one year only, and could be more than wiped out by plans to re-band many properties next year. Similarly, the free bus passes will only allow pensioners to travel during off-peak periods.

Good news on stamp duty and inheritance tax carries similar cautions. A doubling of the threshold at which stamp duty becomes payable, to £120,000, will take 300,000 properties out of the tax's reach. Still, only 7 per cent of homes in the South-east are valued at less than £120,000, according to estate agent Savills.

The levels at which inheritance tax becomes payable on estates are to rise from today's £263,000 to £275,000, £285,000 and £300,000 over the next three tax years. But if the threshold had been raised to bring it into in line with house price inflation, it would now stand at £390,000.

Tax credit recipients are the final group of Budget winners, with further boosts to child tax credit and the pension credit. Those who claim this cash will be genuinely better off. But others will lose out on income tax, because personal allowances and income tax bands are only rising in line with inflation. As wages rise faster than prices, more people will move into higher tax brackets.

CHILDREN

Parents of all children born after 31 August 2002 are already entitled to at least £250 of Child Trust Fund vouchers, rising to £500 for low-income families. On Wednesday, Brown confirmed plans for a second payment of £250 to be made on children's seventh birthdays, and unveiled a third payment, to be added to the funds when children start at secondary school. He has yet to say how much the new payment will be worth.

Mike Warburton, of accountant Grant Thornton, says the Child Trust Fund scheme, intended to encourage parents to save for their children, should be extended: "Children born before September 2002 are being penalised: even if the Government doesn't contribute, why can't parents have access to a tax-free savings vehicle to save for their children's future?"

Brown also confirmed employers will be able to give their staff tax-free childcare vouchers worth £50 a week from next month. The move could save higher-rate taxpayers with children more than £1,000 a year.

The only hitch, according to Derek Hayes, of childcare services company Family Matters, is that too few employers offer childcare voucher schemes, often because they don't realise they can choose to pay part of a salary in this form, rather than adding to the wage bill.

Hayes also warns families receiving tax credit to check if their entitlement could be affected by the vouchers.

ISAS & SAVINGS

Mona Patel, of the Investment Management Association, is delighted the Chancellor has agreed that individual savings allowances (Isas) will be available until at least 2010, with the £7,000 annual contribution limit to the shelters intact.

Brown has also said Isa investors will have access to a wider range of permissible investments, probably from April 2006. This range will include property funds, for the first time, as well as funds of hedge funds. "If people can invest in property through an Isa, that is likely to prove very popular," Patel says.

Real estate investment trusts could also be popular with savers, analysts believe. The Chancellor says he will finalise details of these funds over the next few months, but the trusts will be able to invest in property from anywhere in the world.

The Budget also confirmed more basic savings products, the so-called "stakeholder suite", will be available from next month. These plans will work in the same way as stakeholder pensions, with caps on charges and a requirement for simple design. In return, providers will face less demanding regulation when they sell the plans.

PROPERTY

In addition to the rise in the stamp duty thresholds, the government is to extend its Homebuy shared-ownership scheme, which is designed to help first-time property buyers. Mortgage lenders have committed £500m to the scheme over the next five years.

Under Homebuy, borrowers get 75 per cent of their required mortgage from a conventional lender on standard terms. The remaining 25 per cent is an interest-free loan financed by the government.

ISLAMIC LOANS

The Chancellor should also make it easier for Muslims to buy their own homes. Under sharia law, Muslim homebuyers are not allowed to pay interest. Several banks have come up with deals that get round this problem to enable Muslims to buy property. Typically, the bank buys the home on your behalf and you then repay the capital cost, in monthly instalments, plus rent, to cover the cost of interest that the lender would usually make.

Caroline Mooney, of HSBC, one Islamic mortgage provider, says: "The problem with this arrangement is people don't own their homes right until the end of the deal."

The alternative is for banks to hand over chunks of ownership as buyers pay for them, but under current rules, stamp duty would be payable each time this happens. "The Chancellor now plans to change the rules so the tax is only payable once, which is a real breakthrough," says Mooney.

GAY COUPLES

Same-sex partners have also done well out of the Budget. From December, when the Civil Partnership Act will enable gay couples to officially register their relationships, they'll be entitled to the same tax breaks as husbands and wives. In particular, civil partners will be able to transfer assets between each other during their lifetimes and when they die without having to worry about capital gains or inheritance tax.

NO CHANGE

Two announcements were noticeable by their absence in this year's Budget.

First, Brown failed to clarify his plans to charge inheritance tax on pre-owned assets. These rules will affect people who have given up home ownership to reduce a future IHT bill, but still live in the property.

The Budget also said the Chancellor would continue to consult pension experts over new rules to prevent people taking too much tax-free cash from private pensions when they retire. Rob Walters, of accountant BDO Stoy Hayward, says the lack of final rules on IHT and pensions will give many people a headache. "This makes it even harder to make the right decisions before the new regimes come into play."

Another worry is that the Chancellor plans further reviews of the tax rules on trusts - and not just to catch out wealthy people with sophisticated tax-avoidance plans. Tim Cripps, of accountant Moore Stephens, warns this is another wait-and-see problem. "Draft legislation overhauling the system had been expected in the Budget, but instead the Government announced another consultation period," he says.

'The duty threshold is a joke'

THE LOSERS

Ben Noble and his partner Natalie Tovey are furious that the Chancellor has only raised the stamp duty threshold to £120,000.

They're in the process of buying their first home, in Coleford, a small Somerset village near Frome, but have agreed a purchase price of £127,000. As a result of being just £7,000 over the new threshold, they face a £1,270 tax bill.

"This purchase is a real struggle for us, so that money would have made a huge difference," says Ben, a paint sprayer.

"It's a joke - to buy anything in the South-west for less than £120,000 is practically impossible."

'We deserve the same rights'

THE WINNERS

PR executive Phil Borge and his partner Garry Baxter, who works in telecoms, welcome the security on offer from the financial benefits of the Civil Partnership Act.

The Budget confirmed that same-sex couples who register their relationships will be entitled to the same financial and legal rights as married partners on issues such as inheritance tax.

"Civil partnerships should automatically be entitled to these rights," says Phil.

"Inheritance tax is the sort of thing most people don't really think about, so it's really easy to get caught out."

'The extra money is welcome'

THE FAMILY

Chris and Sarah Woods, from Reigate in Surrey, are pleased with the child-friendly Budget. As the parents of one-week-old Harry, they are encouraged by measures on trust funds, the child tax credit and childcare costs.

However, Chris, a police officer, says more help is needed for working parents. "Of course the extra money is welcome, but we don't feel it will make a huge difference. We need Sarah to go back to work as a community carer at the end of her maternity leave, but with the cost of childcare, we're just very lucky her mum is going to be able to look after Harry."