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Millions affected as tax and benefit changes come in. 02/04/12

The beginning of the tax year on Friday 6 April 2012 will see the introduction of a significant number of changes to tax and benefits affecting personal and family finances.

The amount of income that is tax free is to rise by £630 to £8,105. The value of some benefits will rise by 5.2%, linked to inflation last September. Measures which were announced by the government in the 2011 Budget, as well as last year's autumn statement, are only now taking effect.

They range from increasing the first chunk of income that is tax free - known as the personal allowance - to the annual upgrading of benefits, as well as specific spending cuts.

Among the most important changes are:

  • Benefits such as jobseeker's allowance, income support, disability benefits, maternity benefits and incapacity benefit are rising by 5.2% - in line with the CPI measure of inflation last September (announced in November 2011)
  • Other than a few exceptions, couples with children will have to work for 24 hours a week between them, not 16, in order to qualify for working tax credit. One member of the couple will have to work for at least 16 hours a week (announced in November 2011)
  • The child element of child tax credits is to rise by £135 but the couple and lone-parent elements of working tax credit are being frozen (announced in November 2011)
  • The tax-free personal allowance for those under 65 will rise by £630 to £8,105 (announced in March 2011)
  • For 65- to 74-year-olds, the personal allowance rises from £9,940 to £10,500 (announced in March 2011)

Figures obtained from the Institute of Fiscal Studies (IFS) showed families with children would, on average, be £511 a year worse off as a result.

The Labour opposition's own figures suggest 212,000 families earning less than £17,000 a year will lose their working tax credits if they cannot increase their total hours to 24 a week while 850,000 households will lose their child tax credit as a result in a reduction in the income limit for one-child families.

Chief Secretary to the Treasury Danny Alexander blamed the previous Labour government for leaving the country's finances in a "catastrophic mess". He said overall the richest 20% of the population were bearing the heaviest burden of tax and spending changes but it would still be difficult for people on lower incomes.

The government says 24 million people will be £6.50 a week better off from Friday, something Mr Alexander described as "a fair position which encourages and incentivises work".

Ministers also point to the fact that the basic state pension is to rise by £5.30 to £107.45 a week on Monday.

Stuart Coleman, Manager of the Tax Department of ABDS says:
“According to the IFS, pensioner households will be £119 a year better off as a result of the changes this month while working age households without children will be £156 worse off - figures which exclude measures targeting the "very rich".”

If you need any help and advice on Inheritance tax, Capital Gains Tax, or any other implications of the 2012 Budget, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help in all your financial planning.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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