2012 Budget Statement -Overview
March 29th, 2012
The chancellor of the Exchequer George Osborne claimed it was a Budget to “boost business, support families and reward work”. Certainly headline-grabbing cuts in the rate of corporation tax and new tax reliefs for certain high-growth sectors suggested that, even in a time of austerity, the chancellor was committed to encouraging business investment. On personal tax, meanwhile, he gave – in the form of an increased personal allowance and a drop in the 50% tax rate – and he took away – in the form of lower rate bands for higher rate tax and higher stamp duty and, as a result, the Budget was likely to be something of a non-event for working families.
Giving with one hand
The personal tax allowance for individuals was increased by £1,100 to £9,205 from April 2013, moving closer to the Liberal Democrats’ ambition of a £10,000 personal allowance. However, pensioners will see their age-related allowances frozen from 2012/13 until they move in line with the ordinary personal allowance. This has proved the most controversial of the Budget measures and has been nicknamed the ‘granny tax’. The freezing of allowances is becoming a familiar trick – for example, the capital gains tax (CGT) allowance is frozen at £10,600. Osborne warned last year the 50% top rate of tax would cause “lasting damage to our economy if it were to become permanent”. In this budget, he reduced it to 45%, arguing the tax was raising only a third of its projected £3bn and was harming Britain’s economic competitiveness. The higher rate tax band was frozen at £42,475 and HMRC confirmed an additional 300,000 will pay higher rate tax from 2013/14 when the threshold is cut from £42,475 to £41,450. As expected, the 50% tax rate was reduced from 50% to 45% from April 2013, which will have a knock-on effect on available pension reliefs and will make tax wrappers more valuable for an increasing number of people.
Open for business
As part of his drive to ensure Britain is “open for business”, the chancellor announced several cuts in corporation tax. In the 2012/13 tax year it will fall to 24% and then to 23% for 2013/14 and 22% for 2014/15. The smaller companies rate will remain at 20%. Osborne said he wants to make the UK the “technology hub of Europe” and so he introduced corporate tax reliefs for the video games, animation and high-end television industries. He also announced investment to improve the UK’s broadband network.
The housing market
The chancellor continued his raid on the higher end of the housing market. Having raised the level of Stamp Duty Reserve tax (SDRT) to 5% on homes over £1m in the last budget, homes over £2m will now attract duty at 7%. Wealthy buyers have historically avoided paying SDRT by buying through companies, but the chancellor aimed to close this loophole by levying a 15% tax on companies buying residential property. He also announced plans to extend the CGT regime to gains on the disposal of UK residential property by ‘non-resident, non-natural persons’, such as companies. The mansion tax remains a possibility, with Osborne saying he would consult on the introduction of an annual charge on residential properties valued above £2m.
The UK economy
The Office for Budgetary Responsibility (OBR) continues to believe the UK will avoid a recession. Growth projections for 2012 were revised 0.1% higher to 0.8% but 0.1% lower for 2013 to 2%. The OBR then predicts growth of 2.7% in 2014 and 3% in 2015 and 2016. Business investment growth, for example, has been revised down sharply as a result of the uncertainty in the eurozone, while other areas have been revised higher to compensate. The forecast for government borrowing to fund the UK’s budget deficit during 2012 was reduced by £1.1bn from November to £126bn. Borrowing requirements are expected to continue to decline, reaching £21bn or 1.1% of GDP in 2016/17.
The Confederation of British Industry gave an enthusiastic welcome to the Budget. “The chancellor has painted a clearer vision of how the UK will earn its living in the future and, by seizing the opportunity to make sure our corporate tax system is more internationally competitive, he has sent a powerful signal to companies to invest, do business and create jobs in the UK,” said director general John Cridland.“ An extra one per cent off corporation tax this year could make a big difference to investment intentions. Plans to reduce the top rate of tax to 45p by April 2013 will show our top and aspiring talent this Government wants them to create wealth here.” As with his previous Budgets, the chancellor has been studiously neutral in his fiscal plans but believes the 2012 version will “get the economy moving forward”. For Independent Financial Advice please call Mark or Clare at GMP Independent Financial Advisers LLP on 020 72886400