Budget: Low and middle-income families to be hit IT WAS presented as a Budget for an "aspiration nation," with the emphasis on rewarding hard work and supporting working families. Given the continuing pressure to stimulate growth and reduce borrowing, we were not expecting to see significant tax giveaways in last week's Budget. Other than the reduction of the top rate of tax from 50 to 45 per cent, announced in November and due to come into effect from 6 April, there are no significant changes in the pipeline for higher earners. But a raft of new and previously announced measures coming into force over the next two years, starting next month, will affect low to middle-income families. The increase in the personal allowance to £9,440 next month and then £10,000 in April 2014 - the latter a year earlier than expected - will be a relief for those on the lowest incomes (albeit many will be hit by welfare reforms such as the 1 per cent benefit cap). When combined with the new tax-free childcare scheme for working families, which takes effect in 2015 and helps families with childcare costs of up to £1,200, the higher personal allowance may be the stimulus needed to get many Scots back into the workplace. On the downside, despite much campaigning over the last year by pressure groups, no action was taken to reverse the controversial so-called "granny tax." This refers to the freeze in the age-related personal allowances available to those over 65. While pensioners don't lose money, they will gradually lose the advantage they had over younger people to save or earn more before being hit by income tax. However, there are simple ways for pensioners to mitigate the impact. These include making sure they - and their partner - are making full use of their Isa allowance, using the annual £10,600 capital gains tax allowance and investigating benefits such as pension credit - around 1.6 million people could qualify for this and, according to government figures, £2.93 billion remains unclaimed each year. More Scots will also be dragged into the higher-rate tax bracket, as the threshold for 40 per cent tax is to be reduced to ensure that higher earners do not benefit from the increased personal allowance. But by taking advantage of tax breaks, such as maximising Isa investments and making pension contributions where possible, significant savings can be made and investment returns sheltered from tax in future years. With much of this bad news coming in the Autumn Statement, it is perhaps not surprising that many people will have forgotten about these changes. They will be wondering why the real impact of a "good news" Budget seems to be less cash in their pocket after 6 April. The much-trailed overhaul to the welfare system was one area that was glossed over in the Budget, yet it will have a big impact. The reforms include a clawback of child benefit for higher earners. Under this change, which took effect in January, child benefit claimants in the £50,000 to £60,000 bracket face a staggered withdrawal of benefit. As a result, they will have to self-assess with HM Revenue & Customs via an annual tax return. For many people this will be the first time they have encountered this process, so it could prove stressful. It is, of course, possible to elect not to receive child benefit, thereby avoiding this, but you should weigh up the financial pros and cons first (unfortunately, the deadline for doing so for 2012-13 has now passed). What people may also not realise is that it's possible to reduce their income for these purposes by making pension contributions - so they may wish to discuss the options available by way of a salary sacrifice arrangement with their employer. And then there is the new "bedroom tax," which will reduce the amount of benefit available to those who are deemed to have a spare bedroom in their homes by 14 per cent, rising to 25 per cent where they are considered to be under-occupying by two or more bedrooms. One area spared from further changes last week was tax relief on pension contributions. The annual allowance on which tax relief will be available will remain at £50,000 until 5 April, 2014, when it will fall to £40,000, at which time the lifetime allowance will be reduced from £1.5 million to £1.25m. However, the government confirmed its intention to streamline the state pension, with a simple flat-rate pension for all to be brought forward one year to 2016. So what impact will the announced changes have for the average taxpayer? A household of two earners with two children, bringing in a combined income of £60,000, will take home additional net income after tax of £468 in 2013-14 - an increase of 0.99 per cent from this year. A lower-income couple, both working and bringing in a combined income of £40,000, and with no children, will see an increase of 1.77 per cent (£570). These figures demonstrate that lower-income families should see a larger proportional increase in their after-tax income. Meanwhile, single individuals earning up to £40,000 will see net income increases of between 0.95 and 2.7 per cent in 2013-14. But there remains the question as to how all of this is to be paid for. The personal allowance increase in particular will be a vote winner, but an expensive one - each extra £100 costing around £0.5bn. The Chancellor pointed towards a further freeze on public sector pay and forecast the potential generation of an additional £3bn of tax revenues from tackling tax avoidance. However, given that many of the cuts announced last week have been deferred to April 2014 and 2015 respectively, it remains to be seen whether we can expect further announcements over the next 12 months of an additional package of measures to pay for this good news. Susannah Simpson is head of personal tax, PwC Scotland