Sample Our Expertise

Introduction to Budget 2011

Despite some speculation that Budget 2011 may have brought some unwelcome surprises (for example, outside possibilities of the Chancellor scrapping VCTs or changing the Inheritance Tax system), the net result appears to be largely as predicted with most key changes being confirmation of previously announced reforms.

Key Changes

Income Tax

Personal Allowances

The personal allowance for those under 65 will rise from £6,475 to £7,475. The age related personal allowance for those aged 65 to 74 will rise from £9,490 to £9,940 and the age related personal allowance for those aged 75 and over will rise from £9,640 to £10,090.

The amount of the personal allowance will continue to be gradually withdrawn for all individuals (regardless of age) with ‘adjusted net incomes’ above £100,000 as provided for by section 35 of ITA. The rate of reduction will be £1 of personal allowance for every £2 of income above the £100,000 limit.

The Government has also confirmed that from 2012/13, the personal allowance for those under 65 will rise again to £8,105.

Rates

The main rates of income tax for the 2011/12 tax year will remain at 20% for basic rate taxpayers, 40% for higher rate taxpayers and 50% for additional rate tax payers.

The 20% basic rate applies to taxable income up to the basic rate limit of £35,000, the 40% higher rate applies to taxable income between £35,000 and £150,000 and 50% tax will apply to taxable income above £150,000.

The 10% starting rate for savings will rise from £2,440 to £2,560.

There will also continue to be three rates of tax for dividends – 10%, 32.5% and 42.5% for dividends otherwise taxable at the new 50% rate.

The Government has also confirmed that from 2012/13, the basic rate limit will reduce to £34,730.

National Insurance

For 2011/12, the lower earnings limit will increase from £5,044 a year to £5,304 a year.

The Upper Earnings Limit (UEL) for primary Class 1 National Insurance contributions (NICs) remains aligned with the higher rate income tax level, so for 2011/12 the threshold is now £42,475.

For 2011/12, it should also be noted that:

  • The main rate of Class 1 and Class 4 NICs will be increased by a further 1% to 12% and 9% respectively.
  • The additional rate of Class 1 and Class 4 NICs will be increased by a further 1% to 2%
  • The Class 1 employer rate of NICs will be increased by a further 1% to 13.8%. This increased rate will also apply to Class 1A and Class 1B contributions.
  • The primary threshold and lower profits limit will be increased from £5,715 to £7,225 to compensate the lowest earners.
  • The increase in rates of national insurance should therefore provide an added incentive for both employers and employees to take advantage of salary sacrifice arrangements and drawing dividend income.
Access Bankhall's expertise from just £150/month.  Buy now!