On 22 June, George Osborne introduced his Budget as one which 'pays for the past and plans for the future', adding that the hard choices would not be buried 'in the small print of the Budget document' - change indeed!
The Budget, coming part way through a tax year, was always going to be more about spending cuts and future tax changes than any immediate changes. The virtually immediate (midnight on 22 June) increase in Capital Gains Tax (CGT) for higher rate taxpayers was the exception to this!
Here we have summarised some of the immediate changes and those proposed for future years that are likely to most affect you. Of course, the true implications of the budget announcement depend on your individual personal and professional circumstances so do speak to your L&M financial adviser for more information.
The following changes will be effective from 2011/12. It's bad news for higher rate tax payers. The threshold at which you start to pay higher rate tax is frozen until 2013. Assuming that your income rises each year, more of your pay will fall into the higher band.
The personal allowance for those aged under 65 will be increased by £1,000 to £7,475 and the intention of increasing this further to £10,000 by the end of the Government's term. This could affect your tax planning if you employ members of your family.
Capital Gains Tax
For those whose income and gains remain below the basic rate band for income tax (after allowing for deductions such as losses and the annual exempt amount) the rate of CGT will remain at 18%.
For individuals whose income and gains exceed the basic rate band, trustees and personal representatives, the rate will increase to 28% as from 23 June 2010.
The annual exempt amount (AEA) will remain at its current level of £10,100 for individuals (most trustees £5,050).
With these figures in mind, you should look to maximise allowances such as ISA's and consider utilising investments that are subject to CGT. Why? Because for a higher rate tax payer who makes a gain within the AEA, there is no further tax liability.
The announcement of the immediate increase in CGT to 28% for higher rate tax payers has reopened the argument of investment bonds versus unit trusts.
This latest Budget itself didn't bring any additional changes to investments - just confirmation of some of the changes announced in the April Budget.
Individual Savings Accounts (ISAs)
ISA limits will continue to be indexed in line with RPI from April 2011.
The Government will review the date at which the State Pension Age rises to 66. This will be supported by a call for evidence.
The legislation before the Emergency Budget had fairly wide ranging consequences for a lot of medics - the two primary ones being:
This legislation to taper down relief for those earning over £130,000 was rushed through Parliament and into the Finance Act 2010 despite almost unanimous protestation from pensions experts, life companies and financial advisers alike.
The 22 June Budget recognised the concerns of the industry and voiced its own worries about the complex addition to the tax system and the impact it could have on pensions saving.
Taking the lead of the pensions industry, the Government is proposing to lower the annual allowance to between £30,000 and £45,000. Something which the Tax Incentivised Savings Association, the National Association of Pension Funds and the Association of British Insurers put their weight behind at the beginning of the year.
The details of this are still not known, so watch this space.
Deferring the Effective Annuity Requirement to Age 77
The Government has announced that, with effect from 2011/12, it will end the effective requirement to use a pension fund to buy an annuity by the age of 75 and instead defer it to the age of 77.
This we hope will give people more flexibility when considering their options. For many medics, with the NHS as the foundation of their pension planning, annuities are often avoided and instead other options are sought such as unsecured pensions.
The standard rate of VAT for registered businesses is increasing to 20% with effect from 4 January 2011. However, zero rated supplies, exempt supplies and those subject to the reduced rate of 5% are unaffected by the change.
State Benefits - Child Tax Credit
From April 2011, the second income threshold for the family element of the child tax credit will reduce from £50,000 to £40,000.
The rates of Child Benefit will be frozen for 3 years from April 2011. It has also been confirmed that Child Trust Funds will reduce and cease as announced in May 2010.