The Day After The Budget

1940: Blondie on a Budget - Strayer

It has been a manic few days. There was the endless speculation in the media about what the Budget would contain, then the Budget itself and today further speculation tempered by some analysis. The reality is that you and I can do nothing about what is in the Budget, all we can do is reflect, understand and where necessary make adjustments to your financial planning.

So what is the big news? well probably the gradual phasing out of the Age Allowance. This is probably welcome by most that understand it, though it would seem that a number of politicians and media journalists do not. The age allowance is currently complex in application - extra personal allowances for those over the age of 65, but these are gradually reduced once income is above £24,000 by 50p for every £1 over £24,000. Good financial planning uses allowances for those caught within this income range so that they don't lose allowances (another good reason for ISAs) but those with larger incomes frankly tend to have their personal allowances reduced to the standard levels for all. As you will have gathered we are all having the standard personal allowance increased. I say all, but what I really mean is those earning under £100,000.

The tax tier system continues to be smoke and mirrors - pretty much standard diet to all Chancellors that I have known in my lifetime. Yes it is the case that the personal allowance (income you can earn before paying tax) is rising towards £10,000 - but then the amount of income that you pay 40% is increasing. This is a classic moving the goalpost technique. I will put a separate post about this.

The scrapping of Child Benefit has been altered, thankfully some common sense has prevailed and a few more sums have been done. Its a shame that the Chancellor couldn't simply say that he got it wrong and amended his plan, but there you go.

Corporation tax rates are being reduced - so very good for those running Limited or Plc businesses, such as Ken Livingstone. However for most people this is probably of little interest, for those attempting to do some tax planning, the option of becoming a Ltd company may now be more appealing than self-employed as a partnership or sole trader.

The 50p rate of income tax is being reduced to 45p - but this is hardly news due to all the leaks that pre-empted much of the Budget itself. This is one of those "depend which side you sit on" issues. You will either see this as help to indicate that UKplc is no longer the highest taxed country in Europe and so "open for business" or you will see it as a backhander to the rich. It is of course both.

Pensions were not attacked, but reliefs (excluding those to pensions, VCT and EIS) so mainly capital gains losses and large charitable donations are to be restricted to £50,000 or 25% of income, whichever is the greater. This prevents very large losses deliberately realised in order to pay little or no income tax.

I'm sure you are already bored to death by the annual silly schoolboy behaviour of MPs that we witness each year and the attempt to make a donkey look like a horse. Sadly, little radical reform, much of the Budget is welcome, but the proof of the pudding...