PERSONAL TAX
Tax rates for 2008/09
As previously announced the government proposes to
radically change the tax rates for 2008/09 onwards when the 10% starting rate
will be abolished for earned and pensions income and the 22% basic rate of tax
will be reduced to 20%. The higher rate of tax will continue at 40%.
The starting rate will continue to be available for
savings and investment income. There are no changes to the tax rates applicable
to dividends. However the rate of tax applicable to capital gains will change
significantly to a flat rate of 18% for 2008/09 (see Capital Taxes section).
The income tax bands for 2008/09 were not announced in
the Pre-Budget Report. Details of these are normally made available in the main
spring Budget.
Comment
Gordon Brown had previously announced the reduction
of the basic rate of tax by 2% in the Budget earlier this year. He also
announced that the point at which people start paying the higher rate of tax
will be increased significantly to £43,000 from 2009/10.
There is, however, a significant sting in the tail
for some of those with earned income. The changes in the upper earning limit
for NIC (see Employment Issues) will largely
negate the income tax savings for many.
Allowances
The Chancellor did not announce the level of income
tax allowances for 2008/09. The current personal allowance for those under the
age of 65 is £5,225.
Tax Credits
There are two types of Tax Credits; Working Tax Credit
(WTC) and Child Tax Credit (CTC). The CTC is potentially available to families
who have responsibility for one or more children. There are several elements to
the credit but broadly the maximum is an annual amount for 2007/08 of
£1,845 per child together with a family element (generally one per
family) of £545 per annum. The amount per child has been increased but
the family element has been frozen since the introduction of the credit.
Some credit is likely to be payable for 2007/08 if a
family’s income is less than £58,175 a year, or £66,350 if
there is a child under one year old.
The government announced that from April 2008:
- the child element of Child Tax Credit will increase
by £25 above earnings indexation, in addition to the £150 increase
earnings indexation already announced in the Budget
- the income threshold for Working Tax Credit will
increase to £6,420
- a higher rate of taper will apply for those in the
fast taper band (up from 37% to 39%)
Pensioners
The Chancellor has announced that from April 2008 the
Pensions Credit will be increased to a minimum of £124 for single
pensioners and £189 for couples.
Payments on account (POA) threshold
Individuals who complete a self assessment tax return
have to make direct payments to HMRC of their income tax and Class 4 national
insurance contributions. The POA are made on 31 January and 31 July each year
with a balancing payment for the tax year being made by 31 January following
the end of the tax year. The POA are broadly made by reference to the previous
year’s liability. POA are not due where more than 80% of the previous
year’s liability was met by tax deductions at source from income such as
employment or savings.
Currently where the previous year’s liability is
less than £500 no payments on account are due and the taxpayer just makes
one payment on 31 January following the end of the tax year of their full
liability.
From 2009/10 the £500 threshold will be doubled
to £1,000. The first POA affected by this change will be those due on 31
January and 31 July 2010.
Comment
This measure is expected to remove 367,000
taxpayers from POA most of which have business income.
Residence and domicile
The government has announced the completion of the
residence and domicile review with a package of reforms which will take effect
from April 2008.
The main proposal is that UK residents who are
non-domiciled, who wish to continue to be taxed on a ‘remittance
basis’ rather than on their worldwide income and gains, will have to pay
an annual charge of £30,000. This measure is being introduced to ensure
that they contribute in respect of the foreign income and gains which they keep
abroad and on which they do not pay UK tax. The charge will apply if they have
been resident in the UK for more than seven years.
Other proposals include:
- users of the remittance basis will lose their
automatic entitlement to the personal allowance, currently £5,225,
subject to a de minimis
- to ensure that when determining if an individual is
resident in the UK, days of arrival and departure are counted
- to amend the current rules to remove flaws and
anomalies that allow individuals who are assessed only on a remittance basis to
sidestep UK tax where it is due on income and gains.
The government will consult on the detail of these
proposals and on a wider range of options, including an option to make those
individuals who are resident in the UK for more than ten years contribute more.
Pensions
The government proposes to extend the existing rules
to prevent the abuse of pensions tax reliefs through members surrendering
rights under registered pension schemes during their lifetime or through
reallocation of assets after a member’s death.
The measures will have effect for surrenders made on
or after 10 October 2007 and for increases in pension rights attributable to
the death of a member when the member dies on or after 6 April 2008. |
