After 7 weeks of the coalition government bracing us for higher taxes and lower spending the budget speech was, in the end, not as bad as many people had predicted.
There were some tax rises and inevitable spending cuts but there were some silver linings.
There will be an increase in personal allowance of £1,000 from April 2011 although higher rate taxpayers will not benefit. It is part of the Liberal Democrats big plan to raise this to £10,000 by the end of the coalition term in office.
The Chancellor announced plans to reform the current tax credit system with the aim to target lower income households over middle earners.
It was also announced that existing Furnished Holiday Letting (FHL) rules will remain in place until April 2011 and that they will consult over thesummer about plans to change the tax treatment of FHLs from this date. One big advantage of these rules are that they allow individuals who generate losses from a rental property which meets the FHL criteria to offset them against other income from that tax year.
The Chancellor held back the gloom by announcing that new businesses outside London and the South East will be entitled to an exemption of up to £5,000 of class 1 employers National Insurance Contributions for up to 10 employees in their first year of business.
The basic NI threshold will increase by £21 per week above indexation but this does little to benefit people earning over £20,000 as the previously announced increase in the NI rate of 1% will still come into effect from April 2011.
Capital Gains Tax
As expected, capital gains tax was an easy target for the Chancellor although the rate increase was less than some people had predicted.
The Chancellor announced that gains for high earning individuals will rise by 10% to 28%, while individuals paying tax at the basic income tax rate will continue to pay 18% on any capital gains.
Entrepreneurs relief has been retained and in fact extended to the first £5m of qualifying gains for any individual lowering the effective rate to 10%.
The annual exemption will remain at £10,100 but is expected to increase with inflation in coming years.
Again as expected, VAT is set to rise to 20% from 4 January 2011 along with a corresponding rise in insurance premium tax.
The Chancellor announced large measures to support companies through the difficult times to come. Every company will see a reduction in corporation tax of 1% from April 2011, the main rate becoming 27% while the small companies rate will fall to 20%.
In addition, the plan was set out to reduce the main rate of corporation tax by a further 1% per annum until it reaches 24%.
However, with the good comes the bad! The annual investment allowance which gives companies 100% tax relief on qualifying capital expenditure is being cut from £100,000 to £25,000. In addition, the writing down allowances that companies receive on capital assets are being reduced by 2% to 18% and 8% for certain items.
Proposals for a landline duty have been dropped along with the Chancellor announcing that no new duties are proposed on alcohol or tobacco. In addition, cider drinkers can sleep a little easier now as the proposal to increase duties at 10% above inflation have been dropped!
Please see our special emergency budget tax facts for more information and rates.