WHAT DOES THE CHANCELLOR’S BUDGET MEAN FOR YOU?
CATHERINE GANNON, 48
MANAGING DIRECTOR OF CITY LAW FIRM GANNONS LAW LLP
Catherine is single with two children, earns a gross income of over £100,000 a year and pays a mortgage on her family home. She has a share portfolio and also has mortgages on various investment properties. She does not drink or smoke. She has not contributed much to her pension plans.
PwC’s BUDGET TEAM SAYS:
Catherine was already resigned to the fact she will be losing her entitlement to child benefit from 2013 and this has not changed following this budget.
She is unlikely to benefit much from the increased personal allowance as her income falls into a band where this is eroded by £1 for every £2 she earns over £100,000.
There was some good news for Catherine, with the capital gains tax annual exemption increased to £10,600 should she decide to sell some of the investments in her share portfolio. There is potential for her to diversify these investments and invest in Enterprise Investment Schemes.
The government announced an extension of the tax advantages – the highlight being a 10 per cent increase of tax relief to 30 per cent. She may also wish to start paying into her private pension plans, with the gross annual limits from 6 April 2011 increased from £30,000 to £50,000.
Catherine’s healthy lifestyle choice means she is sheltered from the usual alcohol and tobacco duty increases.
JONNY SAYLE, 25
FOUNDER OF SPIRELIFE, A FITNESS CONCIERGE FIRM FOR CITY WORKERS
Jonny set up his firm, which provides personal training, physio and massage services to clients in their own homes and offices, in December. He is targeting turnover of £75,000 for this year and hopes to take home a salary of £40,000. He does not currently have a pension plan or a mortgage, but is hoping to buy his house soon. He travels by scooter but tries to cycle as much as he can. He does not smoke and drinks moderately.
PwC’s BUDGET TEAM SAYS:
Jonny may be concerned about the impact of the increased banks’ levy, with many of his customers potentially working in the city’s banks.
Unfortunately there is no opportunity for Jonny to opt out of the VAT scheme as the registration limit has been set at £73,000 from April 2011.
As he is close to this threshold, he should monitor his profits carefully going forward for the opportunity to de-register, which would occur once his turnover sinks to below £71,000 and would thus reduce the cost to his customers. Jonny will be pleased to hear that fuel duty has been lowered by 1p per litre when he next comes to refuel his scooter, yet may be disappointed with the two per cent above inflation increase in alcohol duty.
But if he enjoys a beer, he should consider switching to a low strength alternative to benefit from the lower rates when they are implemented in October.
LAURA MUCHA, 28
ASSOCIATE AT NORTON ROSE
Laura lives in central London, she doesn’t own a car as she is on the bike scheme and goes everywhere on it. She is still paying off her student loan with only one year left. She makes £63,500 a year as a first-year qualified solicitor in the firm’s disputes practice and contributes to the firm’s pension scheme. She is not married and has no children. A non-smoker, she drinks on weekends or at social functions but stays away from cider.
PwC’s BUDGET TEAM SAYS:
Happily, Laura will not be affected by the recent dramatic petrol increases given that she cycles everywhere on her bike purchased via the tax advantageous cycle to work scheme. So she will not benefit from the fuel measure.
She will be hit by the one per cent increase in employees’ national insurance.
Laura may wish to restrict her drinking habits to lower strength beers given the budget announcement of a 50 per cent reduction in duty. She should be mindful to avoid “super strength” beers given the 25 per cent increase in duty as announced in the budget.
ADAM HART, 47
CHAIRMAN OF LONDON BRIDGE CAPITAL
Adam is married with three children aged 11,13 and 15. He founded a corporate finance advisory firm specialising in the environmental economy. He makes well over £150,000 a year in salary and bonus. In addition to his main residence, he has a flat in London and a home in Canada, though the mortgages are paid off. He has a self-invested personal pension plan (SIPP). He does not smoke but does drink a moderate amount socially.
PwC’s BUDGET TEAM SAYS:
Adam will be encouraged by the announcement of further government investment of £2bn in the Green Investment Bank. This will specialise in lending for environmental projects and should be up and running by 2012.
He will also be buoyed by the two per cent reduction in corporation tax from April 2011 and the further one per cent falls in each of the following three tax years.
New pension rules dictate that from 5 April 2011 Adam will be able to make a gross contribution of up to £50,000 into his SIPP plus bring forward any unused relief from the three previous tax years based on a £50,000 annual limit.
The one per cent increase in national insurance will unfortunately hit Adam’s take home pay.
He should also prepare himself for being unable to claim child benefit given that he is a higher rate tax payer. It is envisaged that this will be taken away in January 2013.
RICHARD DIFFENTHAL, 30
ASSOCIATE AT LOVELLS
Richard is a corporate solicitor. He has an 18 month old son and rents a property with his wife. They are hoping to get on to the property ladder soon. They have one car but Richard travels to and from work by public transport. He has been flying more frequently than he has before. Richard takes home around £100,000 including bonus a year and contributes to the firm’s pension scheme. He doesn’t smoke and drinks in moderation.
PwC’s BUDGET TEAM SAYS:
Despite the recent dramatic fuel increases Richard will be moderately pleased with the slight respite of the 1p decrease per litre and the introduction of measures by the chancellor to stabilise future price fluctuations.
Unfortunately the help for first time buyers, as announced by George Osborne, will be of little help to Richard. But he will benefit from buying into a subdued market.
Any increase in salary from Lovells would of course be welcome but Richard should be mindful that as he broaches the £100,000 mark he will start to lose his personal allowance.
For the 2011-12 tax year, once his gross salary exceeds £114,950 he will lose his personal allowance completely.
Richard will also be faced with the withdrawal of his entitlement to child benefit in January 2013 given his level of income.
ANDREW GREVETT, 28
BUSINESS DEVELOPMENT MANAGER
Andrew is engaged and lives with his partner, has no children and earns a basic salary of £60,000 a year. He owns a flat in London, which he lets out, and a house in Brentwood, Essex. Both properties are on two-year fixed rate mortgages. He pays £250 a month into a private pension and saves for the long term using a standard savings account.
PwC’s BUDGET TEAM SAYS:
Andrew will be worse off from 6 April 2011 due to the one per cent increase in employees’ National Insurance.
This will be offset slightly in April next year when he will benefit from an increase in the personal allowance of £630 but he will have a year to wait for that gain.
The extension in pension relief which will allow him to make a gross contribution of up to £50,000 per tax year may well be of interest long term, should Andrew’s income increase dramatically over the next couple of years.
Andrew may wish to consider switching his savings account to a cash ISA to shelter up to £5,340 worth of capital per year from taxation.