With a national deficit now hovering around £155bn, what can you expect from the budget proposals on Tuesday 22nd June? Here is Principle First's roundup of budget changes already announced, of budget proposals that appear likely, and of other possible government budget cuts to come.
Pensions: government proposals include removing compulsory annuitisation, gradually increasing the current retirement age, cutting public sector pension schemes, and restoring the link between state pensions and earnings.
Basic State Pension - restoring the link to earnings will help ensure that the Basic State Pension will increase ahead of inflation, and in line with the national average wage.
The state pension is guaranteed to increase in 2011 in line with prices, earnings or 2.
5%, whichever is the higher.
Pensions Tax Relief: those paying tax at 40% or 50% on parts of their income can currently regain that as tax relief on pensions contributions.
If you pay tax at 40% and invest a £6,000 lump sum as pensions savings, you could receive £4,000 in tax relief.
A 50% taxpayer investing £5,000 as pension savings could get tax relief of £5,000 (subject to anti-forestalling rules).
This may all change with the budget changes on June 22nd, as higher-level tax relief is seen as a primary target for government cuts.
Income Tax: government has pledged budget changes to help lower earners by increasing the personal allowance i.
e.
the amount you may earn before tax.
Currently £6,475, government budget proposals promise an increase to £10,000.
However, there is no indication of the timing on this, it could be phased in over several years.
National Insurance: The Tories were extremely opposed to a 1% increase for workers, but may still impose a 1% increase for employers instead, using the increase of the tax-free allowance to £10,000 as a sweetener.
Capital Gains Tax: government budget cuts could raise capital gains tax from the current 18% to 40%, or even more on June 22nd.
The annual capital gains tax exemption, meanwhile, could be cut from £10,100 to £2,000.
While government is not expected to backdate these changes, it is not expected to delay them either.
Capital Gains Tax applies, not to the overall value of an asset, but to the increase in value of an asset since you acquired it.
It applies to the profit you make from selling a second property, whether a buy-to-let or a holiday home, to gains from art or antiques, or to gains made from stocks and shares investments.
It even applies to gifts - if you gift your home to your daughter, without a penny changing hands, there is still no escape from CGT, which will be calculated on a valuation of the property.
One way to defer paying CGT is investing in an Enterprise Investment Scheme, or EIS.
You can recover tax equal to 20% of your investment, and defer paying CGT, provided you leave your funds in the EIS for at least three years.
EIS investments are also generally exempt from Inheritance Tax, once they have been held for 2 years.
Inheritance Tax: the original budget proposals to raise the IHT threshold to £1m are now gone, it will now remain at £325,000 for a single or £650,000 for a couple.
As part of the round of government budget cuts, this may be frozen, to allow inflation to push more people over the threshold.
Venture Capital Trusts (VCTs): VCTs offer tax-incentivised investments in smaller British companies.
They currently give a 30% up-front tax relief on investments of £3,000 - £200,000, although shares must be held for 5 years to retain the relief.
Government budget changes may increase tax reliefs on VCTs to encourage investment in small industry, and in particular in the green technology sector, which was singled out for support through budget proposals in the coalition manifesto.
Pensions: government proposals include removing compulsory annuitisation, gradually increasing the current retirement age, cutting public sector pension schemes, and restoring the link between state pensions and earnings.
Basic State Pension - restoring the link to earnings will help ensure that the Basic State Pension will increase ahead of inflation, and in line with the national average wage.
The state pension is guaranteed to increase in 2011 in line with prices, earnings or 2.
5%, whichever is the higher.
Pensions Tax Relief: those paying tax at 40% or 50% on parts of their income can currently regain that as tax relief on pensions contributions.
If you pay tax at 40% and invest a £6,000 lump sum as pensions savings, you could receive £4,000 in tax relief.
A 50% taxpayer investing £5,000 as pension savings could get tax relief of £5,000 (subject to anti-forestalling rules).
This may all change with the budget changes on June 22nd, as higher-level tax relief is seen as a primary target for government cuts.
Income Tax: government has pledged budget changes to help lower earners by increasing the personal allowance i.
e.
the amount you may earn before tax.
Currently £6,475, government budget proposals promise an increase to £10,000.
However, there is no indication of the timing on this, it could be phased in over several years.
National Insurance: The Tories were extremely opposed to a 1% increase for workers, but may still impose a 1% increase for employers instead, using the increase of the tax-free allowance to £10,000 as a sweetener.
Capital Gains Tax: government budget cuts could raise capital gains tax from the current 18% to 40%, or even more on June 22nd.
The annual capital gains tax exemption, meanwhile, could be cut from £10,100 to £2,000.
While government is not expected to backdate these changes, it is not expected to delay them either.
Capital Gains Tax applies, not to the overall value of an asset, but to the increase in value of an asset since you acquired it.
It applies to the profit you make from selling a second property, whether a buy-to-let or a holiday home, to gains from art or antiques, or to gains made from stocks and shares investments.
It even applies to gifts - if you gift your home to your daughter, without a penny changing hands, there is still no escape from CGT, which will be calculated on a valuation of the property.
One way to defer paying CGT is investing in an Enterprise Investment Scheme, or EIS.
You can recover tax equal to 20% of your investment, and defer paying CGT, provided you leave your funds in the EIS for at least three years.
EIS investments are also generally exempt from Inheritance Tax, once they have been held for 2 years.
Inheritance Tax: the original budget proposals to raise the IHT threshold to £1m are now gone, it will now remain at £325,000 for a single or £650,000 for a couple.
As part of the round of government budget cuts, this may be frozen, to allow inflation to push more people over the threshold.
Venture Capital Trusts (VCTs): VCTs offer tax-incentivised investments in smaller British companies.
They currently give a 30% up-front tax relief on investments of £3,000 - £200,000, although shares must be held for 5 years to retain the relief.
Government budget changes may increase tax reliefs on VCTs to encourage investment in small industry, and in particular in the green technology sector, which was singled out for support through budget proposals in the coalition manifesto.
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