Alistair Darling has delivered his first Budget
as Chancellor of the Exchequer. His focus was
very much on stability against a backdrop of
economic slowdown and turbulence in the global
financial budgets.
His 50-minute speech delivered few shocks
as Mr Darling said the government would do
everything in its power to keep Britain’s
economy strong and inflation low, although
there was “green” thread running
through the Budget.
Summary
of key proposals
- The main rate of corporation tax will fall
from 30% to 28% from April 2008 and taxes
for small companies will be simplified.
- The 18% flat rate of capital gains tax,
and a 10% rate for the first £1 million
of lifetime gains – known as entrepreneur’s
relief – was confirmed as taking effect
from 6 April 2008.
- The £30,000 levy on long-term non-domiciles
to pay their tax on a remittance basis was
confirmed as taking effect from 6 April 2008.
- The 2p rise in fuel duty expected in April
will be postponed until October 2008.
- There will be major reform of vehicle
excise duty from 2009, with new bands created
as an incentive to manufacturers to produce
and drivers to buy the cleanest cars
- Alongside the winter fuel payment, there
will be an additional £100 payment
to over-80s households and £50 for
over-60s households in 2008-09
- Child benefit for the first child will
rise to £20 a week from April 2009,
a year earlier than originally planned.
Previous
announcements
The pre-budget report in October 2007 laid
the foundation for the main budget, although
several of the proposed changes have since
undergone substantial change, notably capital
gains tax (CGT) and non-domicile measures.
Below is a reminder of some of the main pre-budget
measures proposed in October 2007:
- The nil rate band of inheritance tax (currently £300,000)
will become transferable so that the estate
of a surviving spouse or civil partner can
make use of any unused inheritance tax nil
rate band of the deceased spouse or partner.
- An 18% flat rate of capital gains tax will
be introduced from 6 April 2008 and taper
relief and the indexation allowance will
be withdrawn from the same date. The annual
personal allowance will remain (currently £9,200).
- Non-domiciled individuals who have been
UK tax resident for seven years or more will
only be able to use the remittance basis
for paying tax on their overseas income if
they pay an additional charge of £30,000
a year. Years of residence before 6 April
2008 will be taken into account.
- It was proposed to introduce legislation
in the 2008-09 financial year to address “income
shifting”, in that the income of one
person is diverted to a second person, subject
to a lower rate, to gain a tax advantage.
- The fuel charge multiplier for employees’ “free
fuel” will rise by £2,500 to £16,900
from 6 April 2008. This is the sum used as
the basis for calculating the taxable value
for fuel provided by an employer for private
mileage in a company car.
- Renovations and alterations to residential
property empty for at least two years will
be eligible for a reduced rate of VAT of
5% from 1 January 2008. Previously, property
had to be empty for a minimum of three years.
The
economy
Mr Darling began with a summary of the world
economy. He said that turbulence in financial
markets, starting in the United States, had
spread globally, posing a major risk to the
world economy.
But he said that the UK economy would continue
to grow and had the resilience to withstand
global shocks. Key points were:
- the economy grew by 3% last year but Mr
Darling predicted that this would fall to
between 1.75-2.25% this year, rising to between
2.25-2.75% in 2009
- inflation is set to stay steady and Mr
Darling would be writing to the governor
of the Bank of England to confirm the inflation
target as 2%
- borrowing next year will rise to £43bn,
falling to £23bn by 2012-13.
Personal
tax
It had already been announced that the top-rate
income tax threshold will rise to £43,000
from 6th April 2009.
The 10% starting rate is abolished from April
2008, with the basic rate falling from 22%
to 20% at the same time.
Mr Darling said that new income tax allowances
for people aged 65 and older would take 600,000
pensioners out of income tax. By April 2011,
no pensioner aged 75 or over will pay any tax
until their income reaches £10,000 a
year.
The unusually early pre-Budget report in 2007
meant that changes to the basic personal allowance
and starting point for national insurance contributions
(NICs) for 2008-09 were not announced until
18 October.
Income
tax – personal and age-related
allowances 2008/09 |
£ |
|
|
Personal allowance (age under 65) |
5,435 |
Personal allowance (age 65-74) |
9,030 |
Personal allowance (age 75 and over) |
9,180 |
Married couple’s allowance*
(aged less than 75 and born before 6
April 1935) |
6,535 |
Married couple’s allowance*
(age 75 and over) |
6,625 |
Married couple’s allowance*
(minimum amount) |
2,540 |
Age allowances income limit |
21,800 |
Blind person’s allowance |
1,800 |
The main rates of employers’, employees’ and
Class 4 NICs will remain unchanged. The flat
rate of NICs for the self-employed will rise
to £2.30 per week while the upper earnings
limit for national insurance will rise from £670
to £770.
Benefits
and working families
Mr Darling continued the previous years’ Budget
emphasis on eradicating child poverty by 2020.
He said that a further £1.9bn would be
invested over the next three years to relieve
child poverty.
The weekly rate of child benefit for the eldest
child will rise to £20 from April 2009,
a year earlier than had already been announced.
Mr Darling also announced that the child element
of Child Tax Credit will rise by £50
a year from April 2009. This element is already
rising by £150 a year to £2,080
from April 2008.
He said that a key element of eradicating
child poverty was to encourage parents into
work. Measures to achieve this include disregarding
child benefit in calculating income for housing
and council tax benefit from October 2009,
improving work incentives for many of the lowest-paid
families. A working family with one child,
on the lowest incomes, will gain up to £17
a week.
From late 2008, a new Employment and Support
Allowance will replace the current system of
incapacity benefits for new claimants, which
will be accompanied by a new work capability
assessment from October 2008. All existing
incapacity claimants will be required to take
the work capability assessment from April 2010.
Mr Darling said he would be encouraging energy
companies to spend up to £150m to reduce
the cost of paying for fuel through pre-payment
meters.
Savings
Mr Darling confirmed the reform to the Individual
Savings Accounts (ISAs) announced in 2007.
From April 2008, more than 17 million ISA savers will
be able to invest a total annual limit of £7,200
- £3,600 in cash and £3,600 in
stocks and shares.
He also announced the launch of the first
Savings Gateway accounts by 2010, a scheme
designed to encourage people on low incomes
to save. The two-year accounts will be offered
by banks and building societies and at the
end of the account, the government will match
money saved in the accounts, which will be
open to people on a range of benefits and tax
credits.
Pensions
and retirement
Under the government’s minimum income
guarantee, single pensioners will receive £124.05
and couples £189.35 from April 2008.
Mr Darling announced that the there would
be an additional £100 payment alongside
the winter fuel payment to over-80s households
and £50 for over-60s households in 2008-09.
The winter fuel payment is £300 for over-80s
and £200 for over-60s.
Inheritance
tax
It had previously been announced that the
inheritance tax threshold for 2007-08 threshold
would rise to £300,000.
For the tax year 2008-2009 it rises to £312,000,
in 2009-2010 to £325,000, and in 2010-2011
to £350,000.
Business
and enterprise
Mr Darling confirmed that the main rate of
corporation tax will fall from 30% to 28% from
1 April 2008. The small companies’ rate
will rise from 20% to 21%.
He emphasised the contribution of small and
medium-sized enterprises, which he said employed
13 million people, to the UK economy and announced
proposals to make it easier for small firms
to comply with legislation.
Mr Darling did not mention proposals on income
shifting – a tax minimisation arrangement
common in husband and wife and other family
businesses – during his Budget speech,
but the government will introduce legislation
to deal with this in the Finance Bill 2009.
Measures to benefit businesses include a 20%
increase in funding to the Small Firms Loan
Guarantee Scheme, which supports firms that
find it difficult to access conventional finance.
From April 2008, the scheme will also be open
to all small firms, rather than those that
are more than five years old.
Mr Darling said that the upper limit for
an investor under the Enterprise Investment
Scheme, which provides a range of tax reliefs
for investors who subscribe for qualifying
shares in certain companies, would rise from £400,000
to £500,000 a year. There would also
be a £12.5m contribution to a capital
fund for businesses run by women.
Mr Darling also announced that measures would
be taken to encourage more SMEs to benefit
from public sector contracts. An independent
review would take place, with the aim of achieving
a 30 per cent target within the next five years.
Company
cars
A new emissions-based approach will replace
the existing capital allowance regime for business
cars, effective from 1 April 2009. Expenditure
on the most polluting cars will receive a 10%
writing down allowance, with the least polluting
attracting a 20% writing down allowance.
The 100% first year capital allowances for
the cleanest cars will be extended from 31
March 2008 to 31 March 2013, with the qualifying
CO2 emissions threshold will be reduced to
110g/km.
Company car tax rates will be increased on
all but the cleanest cars, emitting less than
135g CO2/km or less in 2010-11.
The incentive to drive fewer miles will be
strengthened by increasing the fuel benefit
charges at least in line with the Retail Prices
Index from April 2009. Tax-free mileage allowances
(AMAPs) rates and thresholds will remain at
the current levels.
Capital
gains tax
Mr Darling confirmed that an 18% flat rate
of capital gains tax and a 10% rate for the
first £1 million of lifetime gains – known
as entrepreneur’s relief – would
take effect from 6 April 2008. Taper relief
and indexation allowance will be abolished
from the same date.
The individual capital gains tax annual exemption
is increased from £9,200 to £9,600
from 6 April 2008.
Residence
and domicile
Key changes to proposals to residence and
domicile reforms announced in the pre-Budget
Report include:
- Income and gains from offshore trusts will
only be taxed when remitted to the UK, even
if they come from UK assets.
- The annual £30,000 charge on non-domiciles
resident for more than seven of the last
10 years will not be paid by children and
should be creditable against foreign tax.
- People with unremitted offshore income
and gains of under £2,000 are exempt
from the £30,000 charge and changes
in personal allowances.
- Day counting tests for residence have been
amended so that physical presence in the
UK at midnight counts as a whole day but
are modified for those in the UK in transit.
Mr Darling said that the rules in the area
of residence and domicile will not be substantially
revisited for the rest of this Parliament or
the next.
Capital
allowances
Changes will be introduced to Capital Allowances
for 2008/9:
- Allowances on long life assets to increase
from 6% to 10%.
- Integral fixtures to become as long life
assets and subject to 10% allowance from
2008, subject to consultation.
- Phased removal of IBAs and ABAs by 2011.
- A new annual investment allowance (AIA)
of £50,000pa spent on plant and machinery
to replace first year allowances (FYA) for
all businesses.
- A payable tax credit for losses incurred
on "green technologies" - subject
to consultation
- Extension of capital allowances to expenditure
on building regulations.
Housing
and mortgages
Mr Darling said that from April 2008 key workers,
such as teachers and nurses, would be able
to borrow up to 50% of the cost of a property
through shared equity schemes, instead of the
current 75%. Stamp duty on shared ownership
homes will not be payable until people own
80% of the property.
He said he wanted to extend the opportunities
for homebuyers to take out long-term, fixed
rate mortgages, and that these should be more
flexible, to protect them from fluctuating
interest rates.
Mr Darling said that these mortgages would
help to reduce some of the risks involved in
taking out mortgages, particularly for first
time buyers and people on low incomes, and
that he would develop this further in the pre-Budget
report in the autumn.
He also announced that sites for 70,000 new
homes had been identified, in addition to 40,000
already under construction, and that there
would be money for the Housing Corporation
to build 70,000 affordable new homes each year.
Alcohol
and cigarettes
From 6pm on Budget day, cigarettes will rise
in price by 11p a packet and a packet of five
cigars by 20p. The 5% VAT rate on smoking cessation
products will continue after 30 June 2008.
From Sunday 16 March, there will be an additional
4p duty on a pint of beer, 3p on a litre of
cider, 14p on a bottle of wine and 55p on a
bottle of spirits. Duty will continue to rise
on alcohol at 2% above inflation for the next
four years.
Charities
Although the basic rate of tax will be 20%
in 2008-09, Gift Aid – tax relief on
donations to charities - will be paid at a
transitional rate of 22% from 2008-09 to 2010-11,
providing charities with additional Gift Aid
worth around £300m over three years.
Property,
transport and the environment
Mr Darling announced that five-year carbon
budgets would be introduced, with the first
set alongside Budget 2009.
In 2006, the government announced that changes
to building regulations would mean that by
2016, every new home would be zero carbon.
Mr Darling extended this to non-domestic buildings,
such as offices and shops, from 2019.
Until 2012, all new zero carbon homes up to £500,000
continue to be exempt from stamp duty, with
zero-carbon homes costing in excess of £500,000
receiving a reduction in their stamp duty bill
of £15,000.
Transport measures include a rise in fuel
duty by 2p, although this has been deferred
from April to October 2008. The main road fuel
duty rates will rise by 1.84p per litre on
1 April 2009 and by 0.5p per litre above inflation
on 1 April 2010.
Mr Darling said he would also be setting aside
funding to test proposals on road pricing,
to reduce congestion and vehicle emissions.
Vehicle excise duty will rise by £5
per year, except for cars with a CO2 emission
level of 120 g/km or below, where there will
be no increase. There will be a £100
increase for cars with CO2 emission level of
226 g/km and above.
Mr Darling said manufacturers needed to be
encouraged to reduce CO2 emissions to 110g/km
by 2020. In 2009, there would be major reform
of vehicle excise duty, with the highest rates
for the most polluting cars and from 2010-11,
the lowest emission cars will pay no tax in
first year. The most polluting cars will pay
a first year rate of £950 in 2010-11.
Capital allowances for business cars will
encourage businesses to choose the lowest emission
vehicles for their fleets.
Mr Darling also announced that he would introduce
legislation in 2009 to introduce charges for
single use carrier bags if retailers did not
take voluntary action to do so. He said this
could cut the 12bn bags used each year in the
UK by 90%.
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