Budget 2011 -2012 Allowances

Personal Allowances

The increase in personal allowances to £8,105 from April 2012 is very welcome and is big step in taking personal allowances to £10,000 which is what the government is working towards.

As with all Budgets what is given with one hand is taken with the other and this year is no exception, as allowances increase the basic rate tax band has decreased from £37,400 for 2010/11 to just £35,000 for 2011/12. In addition to this there has been a 1% increase in National Insurance. The increase in National Insurance has been mitigated by the increase in of the threshold at which you start to pay National Insurance up from £5720 to £7225 from April 2011 although this only applies to those earning £20,000 a year or less, for those earning over £20,000 the NI increase will pinch.

Allowances Uprating.

Currently tax and NIC allowances are linked to the RPI (Retail Price Index) and are updated automatically. From 2012 tax and NIC allowances will be linked to the CPI (Consumer Price Index) which will not mean much to anyone but to the government they expect the change will bring in an extra £1billion to the treasury in 2015/16 alone.

Pensions

As expect tax relief on pension contributions will be restricted as of 6th April 2011. The maximum you will be able to contribute to a pension and benefit from tax relief will be £50,000 per year. A facility is going to be introduced that will allow unused contribution relief to be carried forward to the next tax year.
From 2012 the maximum contributions an individual can make over their life time (Lifetime Allowance), to pension funds will be £1.5million anything over this will be subject to a tax charge.

Furnished Holiday Lets.

Following consultation on the tax treatment of furnished holiday lets back in 2010 the draft Finance Bill contains details of the changes which will be effected from April 2011.

1. Both UK and EEA holiday lets will qualify
2. Losses arising from a FHL whether in the UK or EEA will only be able to offset losses against income from the same FHL business.
3. HMRC will allow some time for businesses that don't meet the 'actually let' test to continue to qualify for 1 or 2 years providing they had the intention of meeting the condition
4. The number of days a property must be available to let has increased from 140 days to 210 days a year, also the number of days a property is actually let has increased from 70 days to 105 days. However these conditions will not come in to effect until April 2012