The Budget 2011 Personal Tax

Tax rates

There were no changes to rates of income tax announced in the Budget.

The Chancellor did say that the 50% rate was intended to be temporary, however, he did not give any time scales for its removal.

Allowances and tax bands

The 2011/12 personal allowance will be £7,475, increasing to £8,105 for 2012/13. This continues the plan to increase the threshold to £10,000, as set out in the Lib Dem manifesto.

The upper limit of the basic rate tax band (ie the level of income at which people start to pay tax at 40%) is reduced to £35,000 for 2011/12, and will further reduce to £34,370 for 2012/13.

Other allowance levels for 2011/12 were announced in December 2010 (set with reference to the September RPI) and are be found on the HMRC web site at http://www.hmrc.gov.uk/rates/it.htm.

Tax Credits

There are two types of Tax Credits; Working Tax Credit (WTC) and Child Tax Credit (CTC). The CTC is potentially available to families who have responsibility for one or more child.

There were no changes to tax credits announced in the Budget 2011.

In the 2010 Emergency Budget in June 2010, a number of changes to tax credits, to take effect from April 2011 and beyond, were announced as follows:

  • A reduction in payments to families earning over £40,000 (from £50,000) from April 2011 and the alignment the thresholds for the child and family element;
  • An Increase in the taper rate at which awards are reduced;
  • The removal of the baby element for new children from April 2011;
  • The removal of the one-off payment to new workers over 50 from April 2012;
  • A reduction in the income disregard from £25,000 to £10,000, and then £5,000;
  • The introduction of an income disregard for income falls;
  • A reduction in the period for back-dating from three months to one month from April 2012.

Comment: In these times of economic uncertainties, it may be advisable to make a protective claim for tax credits so that if your income drops unexpectedly, tax credits will be paid for the whole tax year, rather than being restricted by the date of the claim.

Child Benefit

It was announced in June 2010 that Child Benefit levels will be frozen for the next three years.

In October 2010, it was also announced that Child Benefit will be withdrawn from 2013 for families where at least one of the parents pays tax at 40%.

Individual Savings Accounts (ISAs)

The ISA threshold for 2011/12 will be £10,680 (of which £5,340 may be in cash).

In Budget 2011, it was announced that future increases would be in line with CPI (rounded to £120 to allow regular monthly payments to be made).

Junior ISAs

In October, the Government announced that it would introduce a new tax-advantaged account for saving for children not entitled to a Child Trust Fund, to be known as a Junior ISA.

It is anticipated that these will become available in autumn 2011.

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