Pre Budget Report 2008
2008 PRE-BUDGET REPORT SUMMARY
Chancellor Alistair Darling presented his second Pre-Budget Report on Monday 24 November 2008.
As expected Mr Darling concentrated on measures to protect and support businesses and individuals in these ‘extraordinary, challenging times for the global economy’.
This summary concentrates on the tax measures which are being introduced. The main tax proposals are:
You will find more detail in the following summary. Please do get in touch if you have any questions.
PERSONAL TAX
The government has announced significant changes to the system of personal allowances and tax rates for the next few years. These mainly impact on those with higher levels of income. These changes are set out below.
Allowances and rates
The 2009/10 personal allowance will be £6,475. The basic rate limit will be £37,400. Therefore an individual will pay 40% tax rather than the basic rate of 20% when their total income exceeds £43,875.
The 10% starting rate for savings income band (increased to £2,440) is only available where an individual’s non savings income (broadly earnings, pensions, trading profits and property income) does not exceed the starting rate limit.
Changes for 2010/11
From 2010/11 the personal allowance will be subject to an income limit of £100,000. An individual’s personal allowance will be reduced by £1 for every £2 of gross income they have above the income limit up to a maximum reduction of half of the personal allowance.
For those with income of above a second income limit of £140,000, the amount of their allowance will be further reduced by £1 for every £2 above this income limit up to a maximum of the full amount of the personal allowance.
Gross income for these purposes is broadly all income after adjustment for pension payments, charitable giving and relief for losses.
Changes for 2011/12
A new rate of income tax will be introduced of 45%. This will apply to taxable non savings income and savings income above £150,000.
Dividend income is currently taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. A new rate of 37.5% will be introduced for dividends which fall into the income band of above £150,000.
Trust rate
The trust rate will be increased from the 40% to 45% and the trust dividend rate from 32.5% to 37.5%. These changes will take effect from 2011/12.
Allowances
2009/10
2008/09
£
£
Personal allowance
6,475
6,035
9,490
9,030
9,640
9,180
Married couple’s allowance*
6,865
6,535
6.4.35**
6,965
6,625
2,670
2,540
Age allowance income limit**
22,900
21,800
Blind person’s allowance
1,890
1,800
Notes
*Qualifies for relief at 10%
**Reduce age allowance by £1 for every £2 of excess income over the income limit
National Insurance Contributions (NICs)
The detailed NIC rates, earnings limits and thresholds proposed for 2009/10 are set out below. The thresholds have been increased but the rates of Class 1 and 4 contributions have been held at their 2008/09 levels.
An increase in the rates of national insurance is proposed from April 2011. The increase of 0.5% applies to the rates applicable to employers’, employees’ and the self employed.
National insurance rates
2011/12
rates
2009/10
2008/09
Lower earnings limit threshold
£95pw
£90pw
Earnings threshold
£110pw
£105pw
Upper earnings limit – employees only
£844pw
£770pw
Employees’ Class 1 rate on earnings between threshold and upper earnings limit
11.5%
11%
11%
Employees’ Class 1 rate on earnings above upper earnings limit
1.5%
1%
1%
Employers’ Class 1 rate on earnings above threshold
13.3%
12.8%
12.8%
Employers’ Class 1a rate on benefits
13.3%
12.8%
12.8%
Class 2 – self-employed flat rate
