Assessing the Budget
Although the Budget made the headlines, its impact was limited. And the impact in Northern Ireland is even more limited – especially regarding changes to stamp duty on home purchases.
Chancellor of the Exchequer Alistair Darling announced that for the next two years, there will be no stamp duty for first time buyers on properties costing under £250,000: up from £125,000. The cost of that will be paid for in part by the permanent introduction of a new top rate of stamp duty of 5% on homes sold for over a million pounds. At present the top rate is 4%, for transactions valued above £500,000.
The temporary raising of the threshold is good news for first time buyers in many well-heeled areas of England. But it will have little affect on the housing market here. Average prices for both apartments and town houses are below the £125,000 mark, so those whose home purchases are in the affected £125,000 to £250,000 band are unlikely to be first time buyers.
Tom McClelland, Northern Ireland spokesman for the Royal Institution of Chartered Surveyors, believes that the measure will mostly affect regions where starter homes are more expensive than they are here. “The average house price in the last University of Ulster survey in January was £161,000,” he explains. The number of properties affected by the higher rate of stamp duty will also be fairly small. “The amount of activity at the top end is still not that great,” says McClelland.
Taking from the rich
Wealthy people in Northern Ireland will probably be irritated at the introduction of the higher rate stamp duty, but their pain from the so-called ‘Robin Hood budget’ does not end there. Last year’s Budget announced a new top rate of income tax of 50% on annual income above £150,000 would be introduced from next month, while personal allowances will be gradually withdrawn for those earning above £100,000. In addition, new restrictions on tax relief on pension contributions for those earning above £130,000 a year were announced last week by the Chancellor.
Stronger measures will be taken against people who are evading UK tax by hiding assets offshore. Penalties for UK taxpayers who fail to disclose funds held in tax havens will rise to potentially 200% of the value of the assets hidden. Many more non-payers are likely to be caught as a result of information sharing agreements reached with other countries, plus new legal obligations on UK banks to disclose information on clients who hide assets offshore. Various tax avoidance schemes are to be closed.
Public sector workers may also be unhappy, with a new cap on top pay rates and a commitment to introduce further reforms to public sector pension schemes to cut costs.
Helping the poor
One of the most interesting aspects of the Budget is that every adult is to be given a guaranteed right to open a basic bank account. “This will mean, over the next five years, up to a million more people will have access to bank accounts – something essential in the modern world,” said Chancellor Darling. The Government is concerned that without access to banking it becomes very difficult for people to pay bills, access cash or even to obtain work. Ensuring that welfare recipients can be paid electronically should also reduce government costs.
But banking market analysts Defaqto warn that banks and building societies will trying to sign-up new customers onto charged-for accounts, rather than necessarily offering them a free banking service. In particular, the Defaqto warns consumers against opting for packaged current accounts that come with a range of added benefits that may never be used.
David Black, banking specialist at Defaqto, explains: “Packaged accounts usually have an associated fee which can range from £5 to £40 per month. Consumers need to weigh this up with the benefits offered and figure out what they actually need and whether the features they do need are suitable for their individual circumstances, or could be purchased elsewhere. Added value accounts clearly suit some people, but not others.”
Commission free currency exchange and free travel insurance are the most common added benefits on packaged current accounts, according to Defaqto’s analysis. Defaqto warns that while many banks currently offer free banking services for customers who stay in credit, people who will now be offered basic bank accounts may have difficulty obtaining the free accounts.
Northern Ireland’s Consumer Council issued its own warnings about the move towards basic bank accounts. Consumer Council chief executive Antoinette McKeown says: “Creating bank accounts for all will essentially push more people into a relationship with businesses which are not yet regulated in the way the Consumer Council feels they need to be. Many consumers still feel the charges they have to pay for slipping into the red are unfair and excessively high.”
The Consumer Council fears it is premature to create a right to a bank account when banks are still being criticised for allegedly overcharging many of their customers.
A Question of Finance
Q. A friend of mine has told me that I am legally bound to keep financial records, including copies of my bank statements, for six years. Is this true?
A. Not necessarily, unless you operate a business – but all taxpayers must keep some financial records. HM Revenue & Customs says: “If you’re not running a business, you’ll normally have to keep your tax records for at least 22 months from the end of the tax year to which they relate.” This includes information on income (including savings and investment income), tax paid and charitable donations made using Gift Aid. If you are running a business, you must keep business and personal financial records for at least five years and ten months after the end of the tax year. Failure to comply with these requirements can lead to substantial fines.