There was an expectation among some commentators that the Chancellor’s second Budget would be a dull affair, as he had set the course for the next five years in his June 2010 ‘emergency’ Budget. However, there were still a few unexpected announcements, alongside results from the many consultations launched last year.

Income tax
The personal allowance rose by £1,000 for 2011/12, to £7,475. The Chancellor promised a smaller rise of £630 next tax year, based on his Budget inflation assumptions. However, the increase in the personal allowance will be matched by a reduction of the same amount in the basic rate limit, so the starting point for higher rate tax will remain unchanged. This follows on from the 2011/12 cut of £1,400 in the 40% tax starting point (i.e. the band decrease of £2,400 less the £1,000 increase in the personal allowance).

Indexation of taxes
From 2012/13, increases to allowances and bands for direct taxes (e.g. income tax, capital gains tax and inheritance tax) will generally be made in line with the consumer prices index (CPI) rather than the retail prices index (RPI).

There will be several exceptions, notably to age-related income tax allowances, but the overall effect is a subtle increase in tax because allowances and bands will probably rise more slowly in the future. For example, over the last ten years to March 2011, the RPI rose by 35%, while the CPI increased by 26.4%. 

Company car tax
There was a general company car tax increase for 2011/12, following on from a rise in 2010/11. Alistair Darling announced planned 2012/13 increases in his December 2009 Pre-Budget Report and Mr Osborne did not alter those plans, instead revealing yet another tax rise, this time taking effect in 2013/14. 

If you are changing your company car soon, you might find it worthwhile to examine the scales for the next few years.

Individual savings accounts (ISAs)
In his last Budget, Alistair Darling said that the investment limits for ISAs would increase each year in line with the RPI, rounded up to the nearest multiple of £120. The overall ISA limit duly increased to £10,680 from 6 April. Mr Osborne made two announcements on ISAs:

• The basis of indexation will switch from RPI to CPI from 2012/13. This move is again a subtle way of raising revenue: if CPI rather than RPI had applied for 2011/12, the ISA limit would have been £120 lower.
• From autumn 2011, Junior ISAs will be introduced. They will be available to any child under 18 who does not have a child trust fund (CTF) (broadly, those born before 1 September 2002 or after 2 January 2011). 

The proposed maximum investment is £3,600 per tax year, which may be split in any way between a stocks and shares ISA and a cash ISA. The CTF contribution limit, currently £1,200 a year, will be increased to match the Junior ISA.

Entrepreneurs’ relief
The lifetime limit for entrepreneurs’ relief was doubled to £10 million, with effect from 6 April 2011. Gains up to the limit are taxed at 10%, rather than 18% or 28%. In practice, only a few highly successful entrepreneurs are likely to benefit.

If you sense that the Chancellor was giving nothing away, you may be right. The state of the Government’s finances is such that Mr Osborne has no scope for largesse and he is still looking for ways of extracting extra revenue. To save tax, you should look to your own financial plans, not the Chancellor’s.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Services Authority does not regulate tax advice.

Is your individual savings account (ISA) earning 0.5% interest? If you invested in a cash ISA paying 3% interest a little over a year ago, you should check what rate your capital is earning now. Many cash ISAs offering top rates in spring 2010 did so by adding a substantial one-year bonus rate to a low variable rate. Once the bonus falls away, so too does the attractive return. If you don’t like your current rate, you can always transfer.