The big headline was the Chancellor’s announcement that the 50% tax rate which applies to taxable income above £150,000 is to be reduced to 45% from April 2013. This came as no surprise given the media coverage leading up to the Budget Statement of the fact that the 50% rate had not succeeded in raising the level of revenue anticipated when it was introduced. This was confirmed in a report by HM Revenue & Customs which says the 50p rate “is a distortive and economically inefficient way of raising revenue”. In announcing the cut, George Osborne said the Government could not justify a tax rate that damages the economy and does not raise increased revenue. This begs the question why, if the 50p rate is damaging the economy, should Mr Osborne wait another 12 months to reduce it.
Taxpayers in the £150,000 plus income bracket will clearly be better off when the 45% rate takes effect and this will be welcomed in many quarters. However, many of the highest earning taxpayers will have been using tax reliefs – including charitable donations – to reduce their income tax bills. The fact that the Chancellor is proposing to put a limit on all types of tax relief which are not otherwise capped can be viewed as disappointing. For anyone seeking to claim more than £50,000 of relief, a cap on the relief is to be set at 25% of the claimant’s income.
Wealthier taxpayers are also being targeted through Stamp Duty Land Tax (SDLT). With effect from 22nd March 2012 the rate of SDLT applying to the sale of residential properties of more than £2m is to be set at 7%.
There was, as expected, a boost for low income working families. The amount of income which an individual may have before paying income tax is being increased to £9,205 from April 2013. This will provide a tax saving of around £170 for most basic rate taxpayers. The Government remains committed to removing all individuals with income of up to £10,000 per annum from the tax net but the timescale for this is uncertain.