Q&A: What the Budget means for you

Better-than-expected public finances last month gave Alistair Darling more room for some pre-election sweeteners in Wednesday’s Budget.

In his speech on Wednesday, the chancellor announced a stamp duty holiday on house purchases under £250,000 for first-time buyers for the next two years.

But Mr Darling also confirmed four key tax increases for high earners:

● a 50 per cent top rate of income tax, from April 6, for those earning more than £150,000;

● a tapering down of the personal tax allowance, currently worth £6,475, for those earning more than £100,000, so that it is completely withdrawn for those earning £112,950 or more;

● a restriction on higher-rate pension tax relief for those earning more than £130,000;

● a freezing of the inheritance tax nil rate band at £325,000.

To explain the details of the report and what it will mean for you, John Whiting, tax policy director of the Chartered Institue of Taxation, answered your questions on the Budget.

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My wife and I are hoping to move house later this year - we are looking to buy somewhere for around £230,000. I have bought and sold properties many times, but my wife has never been homeowner. Will we qualify for the stamp duty holiday if we buy jointly? Or should I put the new house in my wife’s name? Eric Spencer, Hampshire

JW: If you buy jointly, then you don’t qualify for the relief. If it is just your wife buying – and she has never owned or part-owned a property before, then the relief applies.

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I’ve heard a lot of mentions of ”fiscal drag” with regards to the freezing of personal allowances and income tax thresholds? What does this phrase mean and how do I know if I have this problem? Tamara R, Richmond

JW: Fiscal drag is where allowances and thresholds aren’t increased in line with inflation; the result is that more people/income get dragged into the tax net (because more people get income above the personal allowance) and more income comes into the 40 per cent higher tax rate. It is the Chancellor’s best friend in many ways and has drawn a good deal more money into the exchequer over the years!

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I already own my home but am thinking of buying a second property in the country which my partner and I would use at weekends. How can we take advantage of the new £250,000 stamp duty holiday? Alexander Higgins, Herts

JW: If your partner has never owned a property in their own name – on their own or jointly – they could buy the new property. But if you are a joint owner of the new property, as you’ve owned before, you don’t qualify.

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The ISA limit of £10,200 was mentioned in the budget, can this full amount be put in a cash Isa? James Haughey, Brighton

JW: I’m afraid not – the £10,200 limit is for all the investment and so the cash element can’t be more than half, so £5,100.

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I’ve had money in a private Swiss bank since the 1980s which I haven’t declared. Given the strength of the Swiss Franc against sterling, I’m thinking of closing my account and physically bringing the funds back to the UK in pounds to spend. How likely is HMRC likely to catch up with me? Iain, London

JW: HMRC now has tax information exchange agreements in place with all manner of countries and is much better placed to get information from banks in many countries. They are increasingly confident they can track down undeclared funds – which is in some ways why they have offered disclosure opportunities for people who have not declared offshore income.

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I earn just over £100,000 and have been told that my effective income tax is going to be 60 per cent, not 50 per cent. Why are people earning more than me paying less tax and how has this happened? Is there anything I can do? Hayley Saunders, Surrey

JW: What is happening is that you are caught by the phasing out of the personal allowance which starts from 6 April 2010. Once someone’s income goes above £100,000, the personal allowance of £6,475 starts to be withdrawn, at the rate of £1 of allowance for every £2 of income above the £100,000 threshold. That means that for a tranche of income – 2 x £6,475 = £12,950 – the effective tax rate is 40 per cent x 1.5, ie the 40 per cent rate plus half as much again to reflect the loss of personal allowances. So that gives a marginal rate of 60 per cent. When income is above £112,950, the marginal rate reverts to 40 per cent. What can you do? Pensions contributions will be very tax efficient – assuming you don’t go above the £130,000 threshold that starts to give problems on pensions tax relief.

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I was looking to sell my house next year which has been valued at just over £1m. But I see that stamp duty on houses over £1m is set to rise to 5 per cent. Does this mean I’ll probably have to take less than £1m to attract a buyer? Or should I try and sell now while I still can? Steven Norris, Blackheath

JW: The 5 per cent rate of stamp duty doesn’t start until 6 April 2011 – so you do have some time to get the house sold. But one can imagine there will be a good deal of ‘bunching’ of prices just below the £1m mark in future.

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Even after the falls in property values in the two years, I believe my house will still be worth just a little more than the inheritance-tax allowance of £325,000. I had read that this allowance was going up to £350,000, which would keep my property below the inheritance tax threshold - but yesterday the chancellor said the limit was being frozen. Will it be frozen at £350,000 or the lower level? And is there anything I can do to reduce any tax bill for my children? Lawrence Brown, Whitstable

JW: The inheritance tax (IHT) threshold is to stay at the current £325,000 level until April 2015 under the Chancellor’s proposals. The basis of planning for IHT is to give assets away and survive seven years; bear in mind also that if you are married, you and your wife have each got a nil rate band and the transferable nil rate band rules mean that there is an effective £650,000 nil rate band available to such couples.

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I earn less than £100,000 a year, so I assume I will not be affected by any of the tax rises or pension changes coming in on April 6th. But I read yesterday about ’stealth’ taxes that will reduce my take-home pay, due to the freezing of the personal allowance and income tax bands. Will this affect me - and how much money are talking about? Dave Roberts, Cheshire

JW: Normally the personal allowance and the tax bands go up in line with inflation. So we might have expected the current £6,475 personal allowance to go up by around £200 – saving a basic rate taxpayer £40 a year. If you are a 40 per cent taxpayer, there will be a similar effect of more income being dragged into the higher rate of tax . Similarly, the NIC thresholds stay the same – had those been indexed, that might have been another £20 or so saving.

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Will the new pension restrictions have any affect on non-doms who keep their retirement accounts outside the UK? Sandra Williams, Harpenden

JW: If you are getting relief against your UK taxable income for the contributions you are making, then yes, the new restrictions will apply – the aim is to limit the relief that is given so I am afraid retirement funds overseas are in scope just as those held in the UK are.

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I earn over £130,000 and am thinking of joining my employer’s salary sacrifice scheme to make sure I’m not caught out by the anti-forestalling rules on pension contributions. Will this work? Clare Wyles, Islington

JW: I’m afraid it won’t – the anti-forestalling rules try to catch everything, as do the general restrictions in relief that apply from April 2011. Essentially the rules try to sweep in all manner of contributions to the pensions scheme – including employers contributions and increases in benefits that the scheme gives.

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I am due to complete the purchase of a property on the 31st March which is below £250,000 but above £125,000. Will I still have to pay stamp duty? Stephanie, Newcastle

JW: I think you have judged things very well – the relief for first time buyers starts from today, 25 March, and is governed by the ‘effective date’ for the transaction – which normally means the completion date. So if you qualify as a first time buyer – no stamp duty!

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Sky News all day after the budget had their running ticker tape updates at the bottom of the screen and one of the messages clearly stated - albeit I may have the amount slightly wrong - ALL PENSIONERS WILL RECEIVE £132.60 FROM APRIL. I cannot find any reference to this anywhere. Regards, DG MacGregor, Edinburgh

JW: The figure of £132.60 is a figure that Mr Darling mentioned in his speech. It isn’t an amount that will be handed over as a lump sum, I’m afraid; rather it is the effective minimum amount that pensioners will be guaranteed (for couples it will be £202.40). It is made up of the state pension and the pensions credit. So it isn’t an automatic payment – pensions credit needs to be applied for.

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I notice capital gains tax wasn’t increased in the Budget but people are saying it might go up later this year. Is this definite and should I sell my portfolio now in case it does? Roger Bakewell, Greenwich

JW: For the moment capital gains tax (CGT) isn’t going up – there was a lot of speculation that it was likely to rise from 18 per cent for 2010/11 onwards but Mr Darling left the rate as it was. In fact he actually made it better by doubling the entrepreneurs relief – surprising some people who had done sales in anticipation of the rate going up!

Will it go up in the future? The differential between the CGT rate and income tax top rate (soon to be 50 per cent) is significant and the LibDems have certainly said the CGT rate should rise. We can’t be sure it won’t go up whoever is in power but it is very unlikely it would go up mid-year – far more likely now that it would be from April 2011.

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Can you tell me what constitutes a first-time buyer under the Government’s stamp duty rules? I have previously owned a property in Spain, does this count? Monica Vinales, London

JW: HMRC have done some notes on this; see http://www.hmrc.gov.uk/budget2010/sdlt-qa-tech-1545.pdf. The hub of the relief is that, to qualify, all those who are registered as owners of the property must be first time buyers and must not have owned a property before – anywhere in the world. So I am afraid you won’t qualify. Indeed, one suspects there will a number of problems in practice with people making mistakes – parents who help a child buy their first property and end up as being joint owners will mean no stamp duty land tax relief.

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With the over 75’s personal allowance of £10,000 in 2011-12, will the income limit of £22,900 still be applied? Also in 2011-12 will I need to be 76 to claim the married couples allowance? John Frenz, Whitley Bay

JW: We were told in passing by Mr Darling that the personal allowance for those aged 75+ will rise to £10,000 from April 2011, as promised some time ago – for the moment it is £9,640. The income limit at present is the £22,900 you mention and that will remain the figure for 2010/11. Whether it will be increased for 2011/12 we don’t know; I would expect that there will be some small increase but we will have to wait and see.

The married couples allowance is available where one of the spouses/civil partners was born before 6 April 1935 – so it does mean that claimants will have to be 76+ at some point in the tax year 2011/12 to qualify.

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When will the removal of stamp duty for property purchases up to £250,000 take effect? Is it immediate? I am looking to buy a house in April and want to know if I will be able to take advantage of it. Thanks. SS, London.

JW: The stamp duty relief for first time buyers is a temporary one – which runs for two years from today, 25 March. So if you are buying in April, you will be OK, provided you haven’t been a property-owner before – there are some quite tight rules about who is a ‘FTB’ .

Incidentally, it’s interesting to note that the new 5 per cent rate of duty on houses above £1m doesn’t start until April 2011.

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