Budget blow for high earners and entrepreneurs

The Chancellor Alistair Darling, unveiled his second budget on 22 April 2009, amid predictions of the worst year for the UK economy since 1940, with the economy overall shrinking by 3.5% and borrowing forecast to increase to a £175bn.

Somehow, the Government has to pay for all this borrowing and it would appear that high earners are going to be the cash-cow. We knew that a new higher rate of income tax was to be introduced in 2011/2012, but Mr Darling has brought this forward to 2010/2011 and has increased the rate from 45% to 50% for those earning over £150,000. As a ‘double-whammy’ he has also confirmed the abolition of personal allowances for those earning over £100,000 and announced that higher rate of relief on pension contributions for those earning over £150,000 is to be phased out.

Disappointingly, for businesses and entrepreneurs, there have been no major changes to Capital Gains Tax and no extension of the controversial entrepreneurs’ relief introduced last year.

The old favourites have also been targeted to increase the Government coffers with alcohol and tobacco duty increasing by 2% and petrol duty increasing by 2p per litre - although not until September.

On a more positive note, the Chancellor introduced the expected car scrappage scheme. From next month to May 2010, motorists will get a £2,000 discount on all new cars if they are trading in one that is more than 10 years old. The move is designed both to stimulate the flagging car industry and to encourage motorists to give up environmentally-unfriendly ‘gas-guzzlers.’ We will also see an increase in the individual ISA allowance to £10,200.

For more information, please contact Katherine Neal on katherine.neal@harveyingram.com or call 0116 257 4459.