How does the Budget 2010 affect you?

UPDATE 23/06/2010 - this post relates to the pre-election budget. For the latest emergency budget analysis click on the following links Emergency Budget at a glance and also Basic rate tax-payers will get a nasty CGT shock following the Emergency Budget)

Yesterday’s Budget was uneventful for the majority of people and was largely a soap box for the current Government to convince the electorate that they know what they are doing. I have to say I’m not entirely convinced. My main gripe, however, is with Darling’s attempt to paint a picture that things could have been worse, with regard to this recession. Let’s not beat around the bush, the economy is in a bad way and the fact that we are rated as 84^th in the world in terms of the effect and extent of taxation is nothing to cheer – and to be honest I can only see things getting worse before they get better. But let’s move on as this is not a political blog and I’m not here to get on my soap box either.

So the important question is……..does the budget affect you?

You will be happy if you:

• Are a first-time buyer purchasing a house for £250,000 or less
• Save (ISA allowances will now increase with inflation each year, but if you analyse the historic long term trend they have effectively been doing so already)
• Claim the Support for Mortgage Interest scheme (SMI) – the scheme has been extended and the interest rate unchanged
• Plan to realise Capital Gains sometime soon (CGT remains at 18% - which is particularly good news for high rate tax payers)
• Aged over 60 – as the winter fuel payment will continue
• Claim child tax credits (these will be increased by £4 a week for parents with children aged one or two from 20120
• Couldn’t previously get a bank (new measures should change this)

But you will be a little miffed if you:

• Pay income tax (personal allowances will not increase meaning more people will pay more tax. In addition, the personal allowance will be gradually removed for people earning over £100,000 a year)
• Pay National Insurance (this has gone up)
• Plan to buy a home in excess of £1million
• Drink or smoke
• Drive (although the planned 3p rise in fuel duty is now being staggered)
• Earn over £130,000 a year and want to pay into a pension (the tax relief on your contributions tax relief will still be severely restricted)
• Facing an Inheritance Tax Bill (IHT rates stayed the same meaning more people will end up facing IHT bills)

So if you don’t fall into any of the above groups then you will be largely unaffected by yesterday’s events

But for me some of the big losers will be people in London. With higher house prices the chances of being negatively affected by the planned changes to housing stamp duty are greater. In addition, the higher level of house prices in the capital mean that Londoner’s estates are more likely to be caught by IHT when they die, particularly as the IHT-free band is being frozen. And while the top earners in the City get little sympathy when it comes to tax, they too will be hit with the withdrawal of personal allowances.

But on a different note, I will be interested in seeing the impact of the first-time buyer incentive. I fail to see how a maximum saving of £2,500 will tempt more first-time buyers into the market. It’s no good saving £2,500 when you can’t even get a mortgage on a £250,000 as you don’t have a 25% deposit. To me it will cause the £250,000 mark to become a threshold for certain types of house (i.e. 2 -3 bedroom houses in London suburbs). If a first-time buyer breaches the £250,000 mark by just £1 they will end up with a tax bill for £7,500, while a purchase for £250,000 incurs no charge at all. So who in their right mind would offer say £260,000 for a house? If more houses are then having to sell for £250,000 those which would have previously gone for £250,000 will be competing with houses which would have gone for larger sums. So driving down the prices, in this particularly price band, as first-time buyers will be able to get more for their £250,000. Maybe that is the point of the exercise and not the tax saving itself, as it will help keep a lid on the prices first time buyer’s can afford while not inhibiting the rest of the housing market. Because whether we like it or not house prices are a crucial part of our economic recovery.

In any event, if you want to see in monetary terms how the Budget affects you personally the BBC has a neat little calculator which works it out for you. (click here).

Until tomorrow…..