Ellacotts Demystify the 2009 Budget
23 April 2009
This was Alistair Darling's second Budget. The Chancellor predicted that the economy will contract by approximately 3.5% of GDP in 2009 - much worse than he predicted in the Pre-Budget Report. The Governments borrowing requirements are also higher than previously predicted. The outcome of this is tax increases and spending cuts in order to meet the growing budget deficit. Some of the planned tax increases will be phased in.
The key tax issues are:
• Rate of income tax for those earning more than £150,000 to rise to 50% from April 2010. In the pre-budget report the proposal was to increase the rate of income tax to 45% from April 2011.
• Tax relief on pension contributions to be restricted for individuals with earnings in excess of £150,000. This will apply where the pension contribution exceeds £20,000 in the tax year. This is effective from April 2011.
• From April 2010, where an individuals net income is above £100,000 the personal allowance will be reduced by £1 for every £2 above the income limit.
• A temporary 40% first year allowance for expenditure on general plant and machinery purchased in 2009/2010. This will relate to expenditure in excess of £50,000 on which the annual investment allowance of 100% can be claimed.
• Businesses making losses will be able to carry back losses against the previous 3 years trading profits. The pre-budget report indicated this measure will apply for 1 year. This has been extended by a further year.
• The ISA limit will be raised to £10,200, up to £5,100 of which can be saved in cash. The new limit will apply to people aged 50 and over in 2009/2010 and for all ISA investors from 2010/2011 onwards.
• Stamp duty holiday for houses up to £175,000 to be extended to 31 December 2009.
• The temporary reduction in the rate of VAT from 17.5% to 15% to continue until 31 December 2009.
• From next month until March 2010 motorists to get a £2,000 discount on new cars if they trade in cars older than 10 years.
• There will be an increase in duty on fuel, alcohol and tobacco.
With announcements of this nature the finer points of the proposed changes in tax legislation are usually buried deep in Budget notes and accompanying documents that are released after the Budget. It is necessary to review these documents in detail, in order to establish if there are significant proposals that did not get mentioned in the Chancellor's speech.
If you have any queries concerning any of the above mentioned issues, or would like advice on the best possible course of action in particular areas, please contact Brian King, Tax Partner at Ellacotts LLP on 01295 250401 or
e-mail bking@ellacotts.co.uk
