The new coalition government has revealed many of its tax and spending plans, but what will this mean for your wallet?
The Conservative and Liberal Democrat alliance will set out firm measures in an emergency Budget within the next 50 days. The parties insist they will help cut the £163 billion a year budget deficit through spending cuts rather than tax rises.
Among the key commitments in David Cameron and Nick Clegg's 'coalition negotiation agreement' include an eventual rise in the personal allowance – the amount of earnings up to which you pay no tax – to £10,000.
However, while some will see tax cuts, anyone with shares or other investments that are liable for capital gains tax, will see huge rises.
There are also major pension changes afoot including the end of compulsory annuitisation – where you swap pension savings for a regular income – at 75, plus the reform of airline taxes.
Before the Budget, a 'final coalition agreement' will be published, setting out further measures.
Below, we round up the Government's initial personal finance plans:
Tax/national insurance (NI)
- Income tax. There will be a "substantial", but undefined, rise in the personal allowance in the first Budget, to take effect from April 2011, "with the benefits focused on lower and middle incomes".
At present, most taxpayers do not pay tax on their first £6,475 of income (their personal allowance). Eventually, the personal allowance will rise to £10,000 (See the Income Tax guide).
- National Insurance. To fund the tax break for some, the Tories have abandoned plans to reverse Labour's one percentage point rise in NI, which will come into effect next April. However, the Government will shelve Labour plans to raise the amount of NI employers pay.
- Inheritance tax (IHT). Tory plans to cut IHT have been put on hold (see the Inheritance Tax guide).
- Capital gains tax (CGT). Individuals who make gains on shares or other investments are likely to pay more CGT. The government want to align rates close to income tax rates rather than the existing 18% rate on profits above £10,100.
- Child trust funds.The parties say cuts will be made to the child trust fund payments for higher earners, where children currently get £250 when they are born, and again at seven. This rises to £500 for families earning under £16,190 (see the Child Trust Fund guide).
- Tax credits. Higher earners will see a reduction in payments. For instance, a couple earning £50,000 a year combined with three kids currently get £10 a week in child tax credits.
- Marriage incentives. Lib Dem MPs will abstain on plans in the Budget to introduce tax allowances for married couples.
- Unemployment. The parties will also create a single welfare-to-work programme designed to help unemployed people get back into work (see the Benefits Check-up guide).
- Compulsory retirement age. The parties will phase out the default retirement age, currently 65, which means employers can sack you when you reach that threshold on the basis of age.
- State pension age. A review will be held to determine when the age at which you can claim the state pension age will to rise to 66 (currently 65 for men and 60 or 61 for women), although it will not be sooner than 2016 for men and 2020 for women (see the State Pension guide).
It is due to rise to 68 for both genders by 2046, under Labour plans.
- State pension payouts. The basic state pension (currently £97.65 a week) will rise in line with earnings in April 2011 rather than with the current system of matching inflation. Pensions will rise by typical wage increases, inflation or 2.5%, whichever is greater.
- Retirement income. You currently have to buy an annuity (a retirement income in return for your pension savings) by 75. But this restriction will be scrapped (see the Annuities Guide).
The Government will revamp the air passenger duty tax, where airlines pay per passenger (with the cost usually passed to travellers), to a per-plane duty to encourage airlines to fill their flights to help the environment (see the Cheap Flights guide).
This will mean higher taxes, meaning potentially higher air fares. A proportion of increased revenues will help fund personal allowance rises.
House buying & selling
Home Information Packs (Hips), which sellers have to complete, will be scrapped. However, one of the elements in a Hip, the energy performance certificate, to determine your home's energy efficiency, will be maintained (see the House-Buying MoneySaving guide).
The parties will continue the planned roll-out of smart meters and establish feed-in tariff systems, to encourage renewable energy, in electricity (see the Cheap Gas & Electricity guide).
The Bank of England (BoE) will take over ""macro-prudential regulation". In other words, the stability of banks and their role in the wider economy.
The BoE will oversee, not regulate, "micro-prudential regulation". In other words, the way products and issues are handled by firms, such as bank charges and payment protection insurance.
It's expected the Financial Services Authority will maintain a front-line role in regulating the latter.
The two parties say Britain will not join the Euro during the next Parliament (see the Cheap Travel Money guide).
Further reading/Key Links