George Osborne

Highlights from the Chancellor’s Budget, 18 March 2015

Along with some encouraging news about the UK economy, some interesting new measures were announced in the Chancellor’s Budget yesterday and below we highlight those which we feel will directly impact the majority of UK taxpayers:

  • As widely forecast, the tax-free allowance will increase. The amount people can earn before paying tax will rise to £10,800 from 2016-17 and then to £11,000 from 2017-18. At the same points in time, higher earners will also receive a two stage increase to the threshold at which they start to pay a 40% rate of tax, with the threshold increasing to £43,300 by 2017-18.
  • The Chancellor also announced a brand new Personal Savings Allowance whereby the first £1,000 of interest (£500 for higher rate taxpayers) will be tax tree. This new allowance will kick in from April 2016 and will take 95% of taxpayers out of savings tax completely. (Fact Sheet available here).
  • Another new scheme announced was the introduction of a new ‘Help to Buy ISA’ aimed at prospective first time buyers. This fairly generous scheme means that the Government will chip in up to £50 extra per month (up to a ceiling of £3,000) when an eligible saver saves up to £200 per month towards their first home. (Fact Sheet available here).
  • In another ISA reform, savers will now be able to withdraw money from a new Flexible ISA and deposit it back later in the same financial year without losing any of their usual ISA tax benefits. £15,240 will be able to be put into this re-styled savings vehicle. Read more

The Shocking Truth about Tax on the Poor

How much is taken in taxHave you ever wondered how much of one’s total income is taken up in tax? And I don’t mean just Income Tax. I mean in ALL taxes paid by ordinary taxpayers throughout the course of a year. Such a figure would need to take into account National Insurance (income tax in all but name, some might say), the insidious Value Added Tax or ‘VAT’ – which on its own is a hefty 20% tax on what is often already taxed money for most ordinary taxpayers, and don’t forget to include Council Tax and finally, of course, Income Tax itself.

Well, the answer may surprise you. Before seeing the answer, though, try The Guardian’s little quiz about this and see how you get on. There are only 8 questions, and for each you simply choose from 4 possible answers – so it’s quick to complete and, once submitted, you are immediately taken to a feedback page where you will be told how your answers compared to the average respondent and, more interestingly, what the correct answers were. It’s interesting to note that, in a joint poll by The Equality Trust and Ipsos MORI, nearly 70% of people drastically underestimated how much the poorest pay in tax, as a percentage of their total income. They also over estimated how much the richest pay as a proportion of total income. This wide misconception is due to most people incorrectly focusing only on Income Tax alone which, in reality, only makes up a small proportion of total taxes paid throughout the course of a typical year.

Spoiler alert: be warned that I’m shortly going to divulge the answers Read more

What is the basic state pension?

The basic State Pension is money you may be able to get when you reach State Pension age. The amount you receive depends on the qualifying years you have built through your National Insurance contributions.

There are two circumstances to be considered:

If you reach State Pension age before 6 April 2010, you normally need to have 44 qualifying years to be entitled to the full basic State Pension if you are a man, or 39 qualifying years if you are a woman. In this case, to get any State Pension you need to meet two minimum conditions:

• you must have at least one qualifying year where you have paid or have been treated as having paid enough NI when you are in employment or voluntary Class 3 cannot get any basic state Pension based on NI credits alone.(You will normally get NI credits when you are ill, unemployed or getting Carer’s Allowance)

• you must have at least 25% of the qualifying years needed for for a full basic state pension(11 years for a man and 10 years for s woman)to get any basic state Pension.

You will not be entitled to a refund of the NI contributions you have paid because those contributions pay towards other benefits like sickness, unemployment, and bereavement benefits.

If you reach State Pension age on or after 6 April 2010, the current contributions conditions are being replaced with new rules:

• the number of qualifying years needed to get a full basic State Pension will be reduced to 30 for women and men .

• you will no longer need to have 25% of the qualifying years needed for a full basic state Pension to get any basic State Pension.

• you will no longer have to have at least one qualifying year where you have paid NI contributions.

The minimum state pension amount is £21.83 a week and the maximum amount is £87.30 a week in 2007/08 tax year.

In order to make up for time when you did not pay NI , you may be able to pay NI Class 3. You have to pay the contributions within six years of the end of the tax year the payment is for.

If you are still confused about State Pension, Taxfile in South London can help you get a better understanding of it, explaining you the importance of filling in a retirement pension forcast form called BR19 so you know exactly where you stand.