The Budget - 12 March 2008

For the 2007 budget click here.

Alastair Darling delivered his first budget on March 12th 2008. Most of the media agree he said very little that was new. This is not altogether surprising as many of the changes announced by Gordon Brown in his last budget (2007) take effect from April 2008, leaving Mr Darling little room to make changes of his own.

This report covers the main taxes and their effect on most people.  All figures are approximate.  It is not intended to be a complete definitive guide to the budget.  If that is what you are looking for you should try The Financial Times or one of the 'Big Four' accountancy firms. Alternatively you could try the official budget pages at HM Revenue and Customs or the government's summary on the DirectGov website.

Income Tax

Savings

Capital Gains Tax

Corporation Tax

Capital Allowances

Stamp Duty

Motoring

Inheritance Tax

Income Tax

These changes were announced last year (2007) by Gordon Brown and confirmed by Alastair Darling.

• The 10p starting rate will be abolished.
• The basic rate will reduce by 2p to 20p.
• The 40% tax threshold will increase from £38,000 to £43,000 in April 2009.

Although the headline grabbing basic rate of income tax has been reduced, the loss of the 10p starting rate in 2009 means people with an annual income between £5,225 and £18,125 will pay more tax. People with an annual income in excess of £18,125 will pay less tax owing to the reduction in the basic rate.

Savings

These changes were announced last year (2007) by Gordon Brown and confirmed by Alastair Darling.

The annual limit on investing in Cash ISAs (Individual Savings Accounts) rises from £3,000 to £3,600 from April 2008.  No tax is payable on interest earned in these accounts as long as the rules associated with the account are followed.

Capital Gains Tax

Alastair Darling announced changes to Capital Gains Tax in the autumn of 2007, and these were confirmed in the budget. From April 2008 the annual exempt amount is £9,600. Gains in excess of this will be taxed at 18%, although an entrepreneur's relief will reduce the effective tax rate on business assets to 10% for the first £1 million of lifetime gains.

Corporation Tax

These changes were announced last year (2007) by Gordon Brown and confirmed by Alastair Darling.

• Reduced - the rate for larger companies reduces by 2p to 28p from April 2008.
• Increased - the rate for small companies (those with profits below £300,000) increases. The old 19p rate increased in April 2007 to 20p. This further increases in April 2008 to 21p, and to 22p in April 2009.
• Small firms will be able to claim 100% tax relief on new capital equipment, up to an annual maximum of £50,000 from April 2008.
• Writing down allowances (the taxman's depreciation) for plant and machinery reduces from 25% to 20% from April 2008.

Capital Allowances

A number of changes have been made to the Capital Allowance rules. (Capital allowances are the taxman's equivalent of depreciation.)

• The annual 'writing down allowance' rate has been reduced from 25% to 20% (this was announced last year by Gordon Brown).
• Small firms will be able to claim 100% tax relief on new capital equipment, up to an annual maximum of £50,000 from April 2008.
• Company cars with a CO2 rating of not more than 110g/km may be written off for tax purposes in the year in which they are purchased.
• From April 2008, once the general capital allowance pool has fallen below £1,000, businesses will be able to write off the balance.

Stamp Duty

From 13 March 2008, transfers of stocks and shares that would previously have been charged £5 stamp duty (SDLT) will be exempt.

Motoring

A number of measures were announced to encourage people to drive more environmentally friendly cars.

• A 'showroon tax' will be introduced in 2010 where vehicles with a CO2 rating of more than 255g/km will pay £950 for their first tax disk.
• From 2010 the first tax disk will be free for vehicles with a CO2 rating of less than 130g/km.
• Changes to Capital Allowance rules will make it more expensive for company's to provide company cars with a CO2 rating of more than 160g/km.
• The planned 2p increase in fuel duty has been postponed until October 2008.
• Fuel duty will increase by ½p above inflation annually from April 2010.

Inheritance Tax

The size an estate needs to be before Inheritance Tax becomes payable will rise from £300,000 to £312,000 in April 2008, to £325,000 in April 2009 and to £350,000 in April 2010. This change was announced by Gordon Brown in 2007.

Alastair Darling announced in the autumn of 2007 that where one partner in a marriage or civil partnership dies without using all their nil rate inheritance tax allowance, the unused amount can be transferred and used by the surviving partner's estate on their death.

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