Budget Commentary 2013.

20th March 2013

There were no major surprises in this year’s Budget statement with the Chancellor halving his growth forecasts but introducing a number of measures to help homeowners, businesses, drivers and beer drinkers. 

In respect of individuals, as widely anticipated George Osborne has brought forward the planned increase of the tax-free personal allowance.  It had been the intention of the Government to increase the personal allowance to £10,000 by the end of the parliament but he has today announced that the allowance will increase from £9,440 from 6 April 2013 to £10,000 from 6 April 2014.  This measure will particularly benefit low and middle range earners at an estimated cost to the Treasury of £1.4 billion.  In 2011/12 the personal allowance stood at £7,475 and by 2014/15 when the £10,000 allowance comes into force will result in a tax saving of £505 per annum for a basic rate taxpayer during the period.

For 2013/14 the basic rate limit will reduce from the present £34,370 to £32,010 meaning that the higher rate threshold will be met at an income level of £41,450.  From 2014/15 when the personal allowance will be £10,000 the basic rate limit will be £31,865 meaning those earning more than £41,865 will fall into the 40% tax bracket.  The 1% increase in the higher rate threshold is below inflation and the effect of this ‘fiscal drag’ will bring an anticipated 400,000 taxpayers into the higher rate.

In respect of capital gains tax, the annual exemption for individuals is due to increase from the present £10,600 to £10,900 for 2013/14 and the overall limit for Individual Savings Accounts (ISAs) will rise from £11,280 to £11,520.  Half of this allowance can be invested in cash with the other half, or total amount, able to be invested in a stocks and shares ISA.

The Chancellor has also announced that the flat rate state pension of £144 per week is to be brought forward a year to 2016.  A cap on social care costs of £72,000 is to be introduced from 2017 to protect hard earned savings with the threshold for means tested help rising from £23,000 to £118,000.

Also announced was help for the building industry and would be home owners by launching two schemes; Help to Buy providing up to 20% interest free loans towards deposit payments and a new mortgage guarantee scheme providing mortgage guarantees for lenders.  The schemes will be open to anyone but only apply to homes worth below £600,000.  The planned 3p per litre fuel duty rise from September 2013 has been scrapped and to assist the pub industry April’s 3p rise in beer duty has been scrapped and replaced by a 1p cut.  All other planned duty increases remain untouched.

To ensure you understand the impact of the Budget 2013, please contact us.