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Wednesday, 03 September 2014

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Happy new tax year! What the budget changes mean for you

Until this week, the weather has been more like summer than spring and people have been out enjoying themselves, probably unaware that this week the tax year ends and starts again.

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Take it as red: George Osborne delivers his Budget

For many this event is not that important but given that the Budget was just a few weeks ago, the changes confirmed in that statement will affect many people and some will feel the distinct chill of winter.

There was good news for those who are basic rate tax payers as that band was extended by £630, and we found out that, for the next tax year, the personal allowance will increase to £9,205. This good news won’t be shared by those subject to higher rate tax but perhaps the biggest surprise – because it was one of the few things that was not leaked – was the so called “Granny Tax”. This change will see those over 65, who previously enjoyed a higher personal allowance (if their income was below £24,000 for 2011/12 – £25,400 for 2012/13), have this allowance frozen. The allowance will remain frozen until the increasing personal allowance for those under 65 catches up.

This amounts to a real increase in the tax due from these taxpayers. It was also the confirmed that the 50 per cent rate that was seen by many in business as stifling growth in business would be cut to 45 per cent, a which is seen as more acceptable. Those taxpayers who are hit by this lowering of the basic rate band must continue to think about ways they can share their investment and other income with their spouse or civil partner, who are perhaps subject to tax at a lower rate. On top of this, those who were receiving the child element of the tax credit, which in the last tax year was lost from £40,000, will now see this ebb away like all other tax credits at 41 per cent so anyone earning over £24,000 will lose this credit.

As previously announced there was no increase in the annual exemption for capital gains tax so it remains at £10,600 for this year.

Furthermore, the rates remain unchanged at 10 per cent for qualifying business sales, increasing to 18 per cent for lower rate taxpayers and a top rate of 28 per cent for those earning more than £34,470. Those with disposals to make in the next tax year should continue to split any asset sales with their lower rate taxpayer spouse or civil partner, if appropriate.

Inheritance tax (IHT) also remained unchanged with the nil rate band staying at £325,000. The Chancellor did confirm the introduction of a reduced IHT rate to 36 per cent “if you leave 10 per cent or more of your estate to charity”.

So happy new tax year to you all. There’s something affecting most people, it’s just that not all of it is worth celebrating.

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