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Chancellor Alistair Darling presented his first budget speech on March 12th 2008, there were many announcements some surprises some not. We have prepared this budget brief which also confirms some of the pre-budget announcements that we feel may be of interest to you.

Although some changes are fairly minor there are others such as the simplification of capital gains, which have caused some controversy.

• From 6 April the basic rate of income tax will be reduced to 20%.
• In addition, the 10% starting rate will be removed for earned income and pensions but retained for savings income. There are no changes to the rates applicable to dividends.

Earnings threshold for class 1 NIC £105 per week from 2008/09.

The “upper earnings limit” for national insurance contributions is going up to £770 a week from £670 a week. This means an extra £100 of earnings per week will now have national insurance levied at 11% rather than 1%.

• For disposals on or after 6 April 2008 CGT will be applied at a new single rate of charge of 18%.
• As a result, taper relief and indexation allowance will be withdrawn.
• Entrepreneurs will be eligible for a fixed rate of 10% on gains of up to £1,000,000. Gains in excess of this limit will be taxed at 18%. This is a lifetime limit.
• The 10% flat rate applies to disposals of all, or part of, a trading business. The relief will also apply to shares in trading companies where at least 5% of the shares are held and the shareholder is an officer or employee of the company.
• Gains made on different occasions will qualify for the 10% rate; the £1,000,000 limit is cumulative.

Capital gains tax annual exempt amount for 2008/09 will be £9,600 for individuals and £4,800 for most trustees.

The changes announced in the pre-budget report last October have already come into effect. Since 9 October it has been possible for spouses and civil partners to transfer to each other their unused inheritance tax allowances, known as nil-rate bands.

The inheritance tax threshold is £312,000 for 2008/09.

In the last pre-budget report the chancellor announced a new regime for individuals who are resident but not domiciled in the UK. This represents a significant change for those taxpayers affected.

Legislation will be introduced in finance bill 2008 to introduce an annual charge of £30,000 per annum for adults who have been resident in the UK for seven out of the last 10 years and wish to continue to apply the remittance basis of taxation and who have unremitted foreign income and gains of more than £2,000 per year. The charge will apply in addition to any tax due on UK income and gains or on foreign income and gains remitted to the UK. This charge will not be a stand-alone charge as originally proposed but will be a charge on unremitted income and gains.

The finance bill 2008 will include legislation to remove the right to certain personal allowances and relief's for income tax and to the capital gains tax annual exempt amount for individuals resident in the UK who make a claim to use the remittance basis of taxation. This will not apply to remittance basis users who have unremitted income and gains of less than £2,000 a year.

The finance bill 2008 will include legislation to change the way in which days are counted for residence test purposes.

There are many changes announced which will affect not only those in business but also individuals such as property owners and investors.

• The writing down allowance for expenditure on plant and machinery will be reduced from 25% to 20% from 2008/09.
• From 2008/09 the writing down allowance on fixtures integral to a building will be 10%.
• Balancing adjustment is no longer available on disposals of agricultural and industrial buildings.
• Agricultural and industrial buildings allowances will be phased out over a period of four years, by 1 April 2011. The 4% allowance will be reduced by 1% a year from 2008/09.
• A new annual investment allowance (AIA) on the first £50,000 spent by small and medium size businesses on plant and machinery will be introduced from 2008/09.
• There will be an increase in the writing down allowance on long life assets from 6% to 10% from 2008/09.

Other announcements

• VAT threshold increased from £64,000 to £67,000
• Corporation tax - small companies rate increases from 20% to 21% from 1 April 2008. The main rate of corporation tax falls to 28% from 30% from 1 April 2008.
• Delay 2p rise in fuel duty for six months
• Increase in the investment limits for ISA's from 6 April 2008, annual investment limit will be raised to £7,200. Up to £3,600 of that allowance can be saved in cash with one provider. The remainder can be invested in stocks and shares with a provider.
• Existing ISA's and PEPs will automatically convert into cash or stocks and shares ISA's. The result being a change in the treatment of interest received on any un-invested cash in a PEP.
• Income shifting- the government intended that legislation would come into effect from 6 April to address 'income shifting'. The government after a period of consultation has reconsidered its position and realises that further consultation is required and will therefore delay the introduction of legislation until the 2009 finance bill.
• Buyers of cars emitting high levels of carbon face a £950 charge from next year.
• Low-polluting cars will pay no car tax for the first year from 2010.

The information in this document is intended to provide only a general outline of the topics covered. It should not be regarded as comprehensive or sufficient to making decisions. Please feel free to contact us if you wish to discuss any of the content in more detail.

HM Revenue and Customs www.hmrc.gov.uk

Companies House www.companieshouse.gov.uk

Chartered Institute of Tax www.tax.org.uk

Association of Taxation Technicians www.att.org.uk

Association of Accounting Technicians www.aat.org.uk