Budget Summary.

Highlights

The 2008 Budget contained a detailed range of tax changes and anti-avoidance measures. Full details can be obtained from the H M Revenue and Customs website at http://www.hmrc.gov.uk/budget2008/index.htm

Some of the more important changes and proposals are summarised below:

INCOME SHIFTING:

Radical new legislation has been proposed by HMRC to counter what it sees as unacceptable tax avoidance carried out by family businesses who share their earned profits from partnerships or limited companies among family members. the broad thrust of the proposals is to tax profits on the person who actually earns them instead of the person who receives them either as company dividends or partnership profit shares. However following consultation it has been decided that these proposals will now be enacted from April 2009 at the earliest. For full details of the current proposals go to HMRC Consultation:-

CAPITAL GAINS TAX:

Almost all the detailed and comprehensive CGT reforms announced at the time of the Autumn 2007 Pre-Budget Report are to go ahead including the abolition of both business and non-business taper relief as well as the curtailment of indexation allowance for individuals and trustees. Additionally a new relief, Entrepreneurs Relief is to be introduced for business owners which has the effect of providing a lifetime allowance of £1million of gains which will be taxed at an effective rat of 10%. Note however that the conditions for this relief are very different from the taper relief rules and in a number of circumstances are much less generous. See also the HMRC FAQ's on this new relief. Some examples were also provided in a Budget Day note accessible by following the links form the HMRC Budget site link.

HouseRESIDENCE AND DOMICILE

Again most of the PBR proposals are to go ahead. The most significant of these are:

The "day counting" rules for non-resident individuals are to be altered so that from 6/4/08 the test will be that an individual is treated as being present in the UK on any particular date if they are in the UK at midnight. this is a relaxation from what was originally proposed in the PBR when it was suggested that both days of arrival and departure would henceforward be counted as days of presence in the UK.

The income tax and capital gains tax rules for non-domiciled, (and also non-ordinarily resident) individuals are to be changed so that anyone wishing to avail themselves of the "remittance basis", under which their overseas income and gains are only taxed when actually brought into the UK, will in future have to pay an "additional charge" of £30,000 for any year in which they wish to use the remittance basis. The rule will only apply to someone who has been tax resident in the UK for seven out of the past ten tax years. See the HMRC FAQ's on this topic.

BUSINESS CAPITAL ALLOWANCES. calculator

Finance Acts 2007 and 2008 introduce some very sweeping changes to the regime for capital allowances for UK businesses. These include:

  • A new Annual Investment Allowance of 105 of the first £50,000 of qualifying expenditures on plant and machinery by all businesses.

  • The phased abolition of Industrial and Agricultural Buildings allowances

  • Abolition of the existing 40% and 50% rates of first year allowances for small and medium sized businesses respectively

  • The introduction of a new 20% rate of annual writing down allowances, (previously 25%)

  • A new rate of 10% annual writing down allowances for Long Life Assets, (previously 6%).

  • A new 10% rate of annual allowances for "Integral Features" in buildings.

  • A new range of allowances of cars targeting low emissions vehicles.

Highlights

Introduction

Alistair Darling unveiled his 1st Budget with an “economic objective to build a strong economy and a fair society where there is opportunity and security for all”.

Personal Taxation

·         Personal Allowances increased to £5,435 from £5,225.

 ·         Starting Rate of Income Tax of 10% abolished from 6 April 2008.

 ·         A new 10% starting rate for savings income up to a limit of £2,320.  

·         Basic Rate of Tax reduced to 20%; basic rate band increased to £36,000 from 6 April 2008.

 ·         Higher Rate Tax unchanged at 40% and higher rate threshold increased to £36,001 but this threshold will be increased from 6 April 2009 to in excess of £40,000.

 ·         From 6 April 2008 there will only be two forms of ISA (Individual Savings Accounts), a Cash ISA limited to £3,600 per annum and a Stocks and Shares ISA maximum investment limited to £7,200 per annum.  It is now also possible to transfer existing Cash ISAs into a Stocks and Shares ISA. 

·         Basic Child Tax Credit rises to £2,085 (£1,845) and the first income threshold rises to £15,575 (£14,495).

 ·         Child Benefit up to £18.80 per week for the first child and £12.55 per week for other children (£20 from 6 April 2009).

 ·         Individuals who receive dividends from overseas companies will be entitled to a non-repayable tax credit from 6 April 2008 at the rate of 1/9th of the dividend receipt.

 ·         There will be a transitional rate of gift aid at the rate of 22% for the three years 2008/09, 2009/10 and 2010/11 with the new basic rate of 20% effective from 6 April 2011.

 ·         Relief for investment in Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) increased from £400,000 to £500,000.

 ·         From 6 April 2008 non-domiciled adults using the remittance basis of tax, who have been resident in the UK for longer than 7 out of the past 10 years, will be subject to an annual tax charge of £30,000 a year as regards the foreign income and gains they leave outside the UK.

 Company Taxation

·         Main rate of corporation tax reduced from 30% to 28% from 1 April 2008.

 ·         Small rate of corporation tax increases from 20% to 21% from 1 April 2008 and increases again to 22% from 1 April 2009.

 ·         There will be a temporary 20% increase in the funds available through the Small Firm Loan Guarantee Scheme and there will be an extension of eligibility to businesses with growth aspirations over 5 years old.

Business Taxation

·         The Government believes that following the Arctic Systems Case that it is unfair that some individuals can arrange their tax affairs to gain advantage by shifting part of their income to another person who is subject to a lower rate of tax.  However, after the recent consultation it intends to introduce legislation through the Finance Bill 2009 and will now not enact the legislation proposed from 6 April 2008.

 ·         VAT fuel scale charges amended from 1 May 2008.  The VAT fuel scale charge for a 12 month period ranges from £82.66 for 120 CO2 band gm/km up to £288.19 for 235 CO2 band gm/km. 

·         Plant and Machinery Allowances reduced from 25% to 20% per annum from 6 April 2008 (from 1 April 2008 for Companies).

 ·         From 6 April 2008 a new Capital Allowance Claim called an Annual Investment Allowance of 100% on qualifying expenditure up to £50,000 is to be introduced for all businesses (from 1 April 2008 for Companies).

 ·         Writing Down Allowances on certain fixtures integral to a building will be set at 10% per annum from 6 April 2008 (from 1 April 2008 for Companies) e.g. electrical systems, water systems, heating systems, ventilators, lifts etc.

 ·         Allowances for Industrial Buildings and Agricultural Buildings are to be phased out over a 4-year period from 6 April 2008 to 6 April 2011.

 ·         Long Life Asset Allowances increased to 10% per annum from 6% from 6 April 2008 (from 1 April 2008 for Companies).

 ·         100% first year allowance on new cars with a CO2 emissions not exceeding 110g/km from 1 April 2008 rather than 120g/km.

 ·         100% first year allowance for expenditure on certain energy saving and water technologies.

 ·         Businesses can write-off unrelieved business expenditure when certain capital allowances pools reach a deminimis limit of £1,000 from 6 April 2008.

·         The Government will legislate existing law and practice for a transfer to or from trading stock which is not made in the course of trade.  In computing the profits of trade, the transfer is treated as made at market value.

 ·         Landfill Tax up to £32 per tonne from 1 April 2008 increased to £40 per tonne from 1 April 2009.

 ·         R & D – Tax Credit rate for small and medium sized companies up to 175% (date of effect to be announced).

 Capital Taxation

·         Annual exemption for capital gains tax up to £9,600.

 ·         For gains above the annual exempt amount the Capital Gains Tax rate for 2008/09 is 18%.

 ·         In addition, a new Entrepreneurs’ Relief will reduce the effective tax rate on some gains to 10% for the first £1m of gains made over a lifetime.

 ·         Stamp Duty exemption introduced for “zero-carbon” homes costing less than £500,000 has been extended to include “zero-carbon” flats.

Winter Fuel Payments

·         To offset the effect of fuel price increases there will be an additional one-off payment of £50 to over 60’s households and £100 to over 80’s households in 2008/09.

 Excise Duties

Duties on alcohol will go up by 2% above inflation for the next four years, and will raise £400m in 2008/09 :

·         4p increase on a pint of beer.

·         14p increase on a bottle of wine.

·         18p increase on a bottle of champagne and sparkling wines.

·         11p increase on a packet of 20 cigarettes.

·         4p increase on a packet of 5 cigars.

·         55p increase on spirits .

·         3p increase on cider.

Vehicle Excise Duties

·         The planned fuel duty increase of 2p per litre will be postponed until 1st October 2008  will rise by a further 1.84p per litre on 1 April 2009 and will increase 0.5p per litre above inflation on 1 April 2010.

 ·         From 2009/10 there will be 6 new Vehicle Excise Duty (VED) bands including a top band M for the most poluting cars that emit more than 255g CO2 per km.  The rate of VED in 2009.10 will be reduced on all cars that emit 150g of CO2 per km or less and increasing the standard rate to £425.  The most poluting cars will pay £950 in 2010/11.

·         This is estimated to raise over £735m in the first full year.

 Value Added Tax

·         VAT Limit increased to £67,000 (was £64,000) from 1 April 2008.  De-registration threshold increased to £65,000.

 

National Insurance

·         Primary and secondary thresholds will increase to £105 per week.

 ·         Rates of National Insurance Contributions are 11% for employees on earnings from £105 to £770 per week and 1% above £770 per week with 12.8% for employers from £105 per week.

 ·         The upper threshold will be aligned with the 40% rate of income tax from 6 April 2009.

 ·         Class 4 NIC rate unchanged at 8% on profits between £5,435 and £40,040 per year with 1% above £40,040 per year.

 ·         Class 2 NIC rate for the self employed up to £2.30 per week.

 Inheritance Tax

·         Inheritance Tax threshold increased to £312,000 for 2008/09 (was £300,000), £325,000 for 2009/10 and £350,000 for 2010/11. 

 ·         Any IHT nil rate band unused on a person’s death after 9 October 2007 can now be transferred to the estate of their spouse or civil partner.

 

Economic Prospects

·         The UK economy grew by 3% in 2007, the fastest growth rate among the G7 economies.  The UK GDP growth is forecast at 1.75% - 2.25% in 2008, 2.25% - 2.75% in 2009 and 2.5% - 3% in 2010.  The CPI inflation target remains 2% for 2009 (2.5% for 2008).

 ·         Net Government borrowing in 2007/2008 is 37.5% of GDP but this will increase to 39.3% by 2012/2013, which just meets the Government’s sustainable investment rule, that net debt should be maintained below 40% of GDP in each year of the current economic cycle.

 ·         Since 1997 spending reviews have delivered sustained increases in public expenditure on :

·         The National Health Service has doubled in real terms  

·         Education is 60% higher in real terms   

·         Transport is 90% higher in real terms   

·         Local Government Grant is 45% higher in real terms by 2010/2011

 ·         Since 1997 the public sector has recruited :

·         79,000 more nurses

·         36,000 more teachers

·         35,000 more doctors

 ·         Annual house inflation was around 2.5% in February 2008 and commercial property prices in the UK have fallen.  The recent changes in bank funding positions could affect house price inflation in the coming months, and seems likely to reduce the volume of activity in property markets.

 ·         The cost of congestion is forecast to more than double by 2025.  The Budget re-affirmed the commitment to exploring national road pricing to tackle congestion and emissions.  The Government has announced an invitation to the private sector to run a number of projects based on charging by time of day, distance travelled and route chosen.

 ·         To strengthen the environmental signal, the forecast tax revenues from the new per plane duty, due to replace air passenger duty on 1 November 2009, will increase by 10% in the second full year of operation.

·         The Government will legislate on single use carrier bags and impose a charge if retailers do not take voluntary action. 

National Minimum Wage

·         The National Minimum Wage to be increased to £5.73 per hour from October 2008 from £5.52.

 

 

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