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24 November 2008Turcan Connell reviews the key points of the Chancellor’s Pre-Budget Report
As widely expected, in his Pre-Budget Report announced this afternoon, the Chancellor Alistair Darling has taken steps to attempt to increase consumer spending and help business recovery through tax cuts.
Businesses will benefit from a reduction in the rate of VAT from 17.5% to 15% and small companies will not now have to pay the increase of 1% in corporation tax from April 2009 as this increase will now be deferred until April 2010. There is also an extension of the trading loss carry back provisions for businesses (whether they are incorporated or not).
Individuals will benefit from a permanent retention of the increase in the personal tax-free allowance introduced earlier this year and those on low incomes will also benefit from improvements to the tax credits system.
However, it seems clear that the cost of raising public borrowing to finance tax cuts will be met from higher taxation in the years ahead. Headline examples of higher taxation announced by the Chancellor included an increase (from 6 April 2011) of 0.5% in all rates of National Insurance Contributions and an increase in the top rate of income tax from 40% to 45% for those with an annual income (whether savings or non-savings income) in excess of £150,000.
In summary, the other main changes affecting individuals announced today are:
From 6 April 2009, personal allowances for all individuals will increase from £6,035 to £6,475. The basic rate of tax will remain at 20% and the top rate of 40% will apply to income above £37,400 (an increase of £800 on the current basic rate band).
From 6 April 2010, the basic personal allowance will be subject to income limits of £100,000 and £140,000 meaning that only those individuals whose income is below the £100,000 income limit will continue to be entitled to the full allowance. Those whose income exceeds the £100,000 limit will have their entitlement to the allowance reduced by £1 for every £2 above the income limit up to a maximum of one half of the basic personal allowance. Where an individual’s gross income is above a second income limit of £140,000, the amount of their allowance will be further reduced by £1 for every £2 above the income limit up to a maximum of the full amount of the basic personal allowance.
From 6 April 2011, individuals will be taxed at a new rate of 37.5% on dividend income above £150,000 and 45% on other income in excess of £150,000. Trusts will also be taxed at 37.5% on dividend income and at a new trust tax rate of 45% on non dividend income.
Regarding pensions, the lifetime allowance for tax relieved savings in a registered pension scheme which is set to rise to £1.8m in the tax year 2010/11 will remain at that level for the following five tax years until 5 April 2016. Similarly, the annual contributions limit on which income tax relief may be claimed (currently £235,000 and set to increase to £255,000 by 2010/11) will remain fixed at £255,000 for five years up to and including 2015/16.
If you have any queries about how any of the changes outlined in today’s speech may affect you or you wish to speak with one of our tax specialists, please call us on 0131 228 8111.
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