What the Budget sprang
Mr Osborne's second Budget managed to produce a few surprises, in spite of all the changes his first Budget contained.
There was an expectation among some commentators that George Osborne’s second Budget would be a dull affair, as he had set the course for the next five years in his June 2010 ‘emergency’ Budget. However, there were still a few unexpected announcements, alongside results from the many consultations launched last year.
Income tax The personal allowance rose by £1,000 for 2011/12, to £7,475. The Chancellor promised a smaller rise of £630 next tax year, based on his Budget inflation assumptions. However, the increase in the personal allowance will be matched by a reduction of the same amount in the basic rate limit, so the starting point for higher rate tax will remain unchanged. This follows on from the 2011/12 cut of £1,400 in the 40% tax starting point.
Indexation of taxes From 2012/13, increases to allowances and bands for direct taxes (eg income tax and inheritance tax) will generally be made in line with the consumer prices index (CPI) rather than the retail prices index (RPI). There will be several exceptions, notably to age-related income tax allowances, but the overall effect is a subtle increase in tax because allowances and bands will probably rise more slowly in the future. For example, over the last ten years to March 2011, the RPI rose by 35.0%, against 26.4% for the CPI.
Company car tax There was a general company car tax increase for 2011/12, following on from a rise in 2010/11. Alistair Darling announced planned 2012/13 increases in his December 2009 Pre-Budget Report and Mr Osborne did not alter those plans, instead revealing yet another tax rise, this time taking effect in 2013/14.
Entrepreneurs’ relief The lifetime limit for entrepreneurs’ relief was doubled to £10 million, with effect from 6 April 2011. Gains up to the limit are taxed at 10%, rather than 18% or 28%. Only a few highly successful entrepreneurs are likely to benefit.
If you sense that the Chancellor was giving nothing away, you may be right. The state of the Government's finances is such that Mr Osborne has no scope for largesse and is still looking for ways of extracting extra revenue. To save tax, you need to look to your own financial plans, not the Chancellor’s.