Budget Changes - Whats in the pipeline ?

Published 09th Mar 2008

Even if Alistair Darling stood up on budget day, said nothing, and then sat down again, there would still be many changes to the taxation system this coming April.

More than 30 separate alterations were announced in last year's budget and also in last autumn's pre-budget report.

And nearly all will come into effect on 5 April.

Some are fairly minor, while others - such as the proposed simplification of capital gains tax - have been very controversial.

"This is the biggest set of changes to be implemented in any one year under Labour," said the Institute for Fiscal Studies (IFS).

These changes could be tweaked a bit by the chancellor on Wednesday, but this is how things stand at the minute.


INCOME TAX

The changes to income tax will affect many people.


The people who are worse off are the low paid who are also single, or married but with no children
Chas Roy-Chowdhury, ACCA

A budget for better or worse?

Nearly 32 million will pay tax on their incomes this financial year, whether it be from employment, self-employment, pensions, investments or state benefits.

And the HM Revenue and Customs (HMRC) expects them to pay a total of £150bn.

The low 10% "starter" rate is being abolished, while the so-called "basic" rate of 22% comes down to 20%.

For those aged over 65 the impact of doing away with the 10% rate will be offset by a substantial increase in their annual tax-free allowance, which goes up from £7,550 to £9,030.

There will also be increases to tax credits, child benefits and state pensions.

"The people who are worse off are the low paid who are also single, or married but with no children," said Chas Roy-Chowdhury of the Association of Chartered Certified Accountants (ACCA).


NATIONAL INSURANCE

What the chancellor giveth he taketh away, from some people anyway.

The "upper earnings limit" for national insurance contributions is going up to £770 a week from £670 a week.

That means an extra £100 of earnings per week will now have national insurance levied at 11% rather than 1%.

People with earnings that lie between £35,000 and £40,000 a year are those most likely to be affected.


CAPITAL GAINS TAX

This is the big one.

Money
CGT has attracted a disproportionate amount of attention

Or at least it would seem so, judging by the complaints that have come from business organisations and accountants since the chancellor suggested last year that capital gains should be taxed in a simpler fashion.

About 260,000 people currently pay CGT, with their tax amounting to £4.8bn this financial year.

For them, the very complicated reliefs, known as taper relief and indexation, are being abolished.

Instead CGT will be applied at a flat rate of 18%, which means some of these taxpayers will pay less than before.

But in response to the complaints, a lifetime allowance of £1m - which will be taxed at a rate of just 10% - will be brought in for the benefit of entrepreneurs who might otherwise have seen their CGT bills go up.


INHERITANCE TAX

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 the nil-rate bands.

These bands are in turn going up, starting with a rise to £312,000 per person this April.

But Chas Roy-Chowdhury suspects more tax relief could be in the offing.

"The Tories have talked about a £1 million exemption level for couples, so it may be raised further by the government, " he said.


NON-DOMS

They too have attracted a lot of publicity.


There are many other people who might also be considered as non-doms, such as foreign students and lower-paid immigrant workers
John Whiting, PwC

Helping your children buy their property

They are the people, often from abroad but living and working here, who have a special "non-domiciled" status.

It means they pay tax on their UK earnings, but not on any money generated abroad, so long as they do not bring it here to spend.

The plan is that after seven years of living here, any non-dom will have to pay £30,000 a year to keep that privilege or be faced with paying UK tax on their worldwide income.

The government says two years ago there were 111,0000 people who had asked for non-dom status, and only a minority of them would find it worthwhile to pay the annual levy.

But John Whiting of the accountants PricewaterhouseCoopers estimates that there are many more people who could find their affairs under closer scrutiny, perhaps up to five million.

"It looks to me like the authorities have overlooked the possibility that there are many other people who might also be considered as non-doms, such as foreign students and lower-paid immigrant workers," he said.


SAVINGS

People who still have enough money to save are finding the government is being a bit more generous.

Its hugely successful system of tax-free individual savings accounts, or ISAs, is being revamped.

More than 17 million people have accumulated more than £200bn in ISAs since they were first launched in 1999.

Now the confusing concept of mini and maxi-ISAs will be dropped.

And the overall annual contribution limit is going up from £7,000 to £7,200, with savers being able to put away as much as £3,600 year in a cash account.


BUSINESS TAXES

The impending reduction in the main rate of corporation tax, from 30% to 28%, is a big deal for companies.


Almost every pound given away with one hand [is] being taken back with the other
Institute for Fiscal Studies

Tax changes offer partial relief

However this is being offset by reductions to various capital allowances, which have enabled companies to reduce their tax bill in the past.

The result is that the overall position of most firms is little changed.

And that is true for most individuals as well, according to the IFS.

The changes "involve tax cuts and tax credit increases worth £14bn in this coming tax year, offset by tax increases of roughly the same amount," said the IFS.

"With almost every pound given away with one hand being taken back with the other."

Source: ' 'BBC' '

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