Budget 2008

PERSONAL INCOME TAX

Income tax allowances and reliefs and credits 2008/09 2007/08 Personal allowance (basic) £5,435 £5,225 Personal allowance (age 65-74) £9,030 £7,550 Personal allowance (age 75 & over) £9,180 £7,690 Married/civil partners (minimum) at 10%* £2,540 £2,440 Married/civil partners (age under 75) at 10% * £6,535 £6,285 Married/civil partners (age 75 & over) at 10% £6,625 £6,365 Age-related relief reduced by 50% of income over £21,800 £20,900 Child Tax Credit (CTC)     - family element - family element baby addition CTC usually reduced by 6.67% of joint income £545 £545 £50,000 £545 £545 £50,000 Childcare and childcare vouchers (weekly tax-free limit) £55 £55 Blind person's allowance £1,800 £1,730 Rent-a-room tax-free income £4,250 £4,250 Venture Capital Trust (VCT) at 30% £200,000 £200,000 Enterprise Investment Scheme (EIS) at 20% £500,000 £400,000 EIS eligible for capital gains tax re-investment relief No limit No limit Registered Pension Sceme     - annual allowance - lifetime allowance £235,000 £1,650,000 £225,000 £1,600,000 *Where at least one spouse/civil partner was born before 6 April 1935

Income tax rates 2008/09 2007/08 Starting rate 10% on first £2,320* £2,230 Income to which starting rate applies Savings All Basic rate on earned, pensions and property income 20% 22% Basic rate on savings income 20% 20% Higher rate 40% on income over £36,000 £34,600         Dividends basic rate taxpayers higher rate taxpayers 10% 32.5% 10% 32.5% Pre-owned assets tax (charged as income) - minimum taxable £5,000 £5,000 Trusts: standard rate band generally dividends (rate applicable to trusts) other income (rate applicable to trusts) £1,000 32.5% 40% £1,000 32.5% 40%

Tax rates

Personal tax will change in 2008/09. The starting rate of tax (10%) will only apply to savings income. If an individual’s non-savings taxable income exceeds the starting rate for savings, the starting rate band will be unavailable. In practice, this means that most taxpayers will lose access to the 10% band. The basic rate of tax will be 20% and the savings rate will be merged with the basic rate.

Enterprise management incentive scheme (EMI)

For options granted after 5 April 2008, the individual employee limit on grants of EMI qualifying options will increase to £120,000. From the date the Finance Bill 2008 receives Royal Assent, EMI will be limited to qualifying companies with fewer than 250 employees. Companies involved in shipbuilding and coal and steel production will be excluded.

Company car benefit charge

A 10% car benefit percentage charge will apply to cars with CO2 emissions of 120g/km or less (it will be 13% for most diesels) from 6 April 2008. The lower emissions threshold for the 15% benefit charge for petrol cars will fall to 135g/km for 2008/09 and to 130g/km for 2010/11.
Tax Tip

Think Ahead

Check how much you pay for the fuel used on business trips in company cars. Employers can pay up to 19p a mile tax free (depending on engine size) to employees who buy their own fuel for their company car. If the actual cost to the employee is more, you can negotiate a higher rate with your tax office.

Employer contributions to occupational pension schemes

For accounting periods starting after 31 March 2004, legislation will confirm that tax relief for employer contributions is given for cash payments made in the accounting period and not for the amounts shown in the company accounts.

Pensions savings and inheritance tax

There will be an unauthorised payments charge and an inheritance tax charge, if appropriate, where scheme pensions or annuities are diverted to provide an inheritance. The charges will apply on scheme members’ deaths after 5 April 2008. There will be a limited exemption for schemes with at least 20 members.

Taxation of personal dividends

For 2008/09, investors with shareholdings of less than 10% in non-UK resident companies will be treated as if they had received a non-payable 10% tax credit for the dividends paid. The 10% shareholding limit will be removed for 2009/10 onwards, but no credit will be given if the foreign country involved does not levy a tax on corporate profits similar to corporation tax. Other anti-avoidance provisions will also apply.

Individual savings accounts (ISA) limits

The Chancellor confirmed that for 2008/09 the maximum amount that can be paid into an ISA will increase to £7,200 and of this, £3,600 can be in the tax-free cash component.

Don’t forget
Use your ISA flexibly and invest early in the tax year to get the full benefit. If you have not invested in a maxi ISA in 2007/08, you can open a mini cash ISA and use it as a day-to-day savings account. The interest will be tax-free if you limit deposits to £3,000 in 2007/08 and £3,600 a year from 6 April 2008.

ISAs and Northern Rock

Investors who withdrew cash from their Northern Rock ISAs between 13 and 19 September 2007 can reinvest the amounts withdrawn into a new cash ISA by 5 April 2008 without affecting their normal ISA annual allowances. The reinvestment may be made with any provider.

Funds of alternative investment funds (FAIFs)

Authorised funds investing in non-qualifying offshore funds will be able to elect for a new tax treatment. The authorised fund will be exempt from tax on offshore income gains that it realises, but the investor will be chargeable on any gains as income. The option will become available once the Financial Services Authority has made the appropriate regulatory changes.

Property authorised investment funds

From 6 April 2008, authorised investment funds will be able to elect for a new tax regime similar to the one that applies to UK real estate investment trusts (REITs), if they invest mainly in property, UK REITs or similar foreign companies. This will enable exempt investors, including ISA and pension managers, to reclaim the tax deducted by the authorised fund on rental and certain other income.

Saver

Check you are not paying too many NICs. When you have more than one job, or are employed and self-employed at the same time, you may well overpay your NICs. You can avoid this by applying to defer payment on one of your incomes.

Offshore funds

A new tax regime will be introduced for offshore funds. Investors in funds that ‘report’ their income will be subject to capital gains tax on gains, even for funds that make no distributions. The investor will be liable to income tax on the reported income. Investors in ‘non-reporting’ funds will be subject to income tax on their gains.

Enterprise investment schemes (EISs) and venture capital trusts (VCTs)

The annual investment limit for EISs will rise to £500,000 for shares issued after 5 April 2008. Shipbuilding and coal and steel production will be excluded as qualifying activities for EISs, VCTs and corporate venturing schemes.

Double taxation treaty abuse

For income arising from 12 March 2008, an anti-avoidance measure will apply to UK residents who avoid UK tax using double taxation treaty provisions and foreign partnerships comprised of foreign trustees.

Income shifting

Legislation to counter income shifting, eg using dividend payments from family companies to reduce tax, will be introduced in the Finance Bill 2009. The new regime will not now take effect from 6 April 2008, as originally proposed.

 

----------------------------------------------------------------------------------------------

This summary has been prepared very rapidly and is for general information only. The proposals are in any event subject to amendment before the Finance Act is passed. You are recommended to seek competent professional advice before taking any action on the basis of the contents of this publication.

BACK TO MENU