Summary of Changes Affecting Private Individuals

This bulletin looks at the most important (or interesting) changes announced by the Chancellor which will affect private individuals. Many of these changes had already been announced in the Chancellor’s pre-budget statement last autumn. Here we are concentrating on what is new and, particularly, those changes which may affect clients adversely if action is not taken promptly.

Chancellor Alistair Darling’s first Budget speech was something of a ‘wolf in sheep’s clothing’. The wolf of higher taxation was dressed up in the sheep’s clothing of an ‘environmental budget’, the practical effect of which will be a moderate increase in taxation for many families. From next year, a ‘Carbon Budget’ will be announced alongside the Budget. This year, the fuel benefit for the over 60s rises from £200 to £250 and for the over 80s to £400, which seems oddly inconsistent with a Budget aiming at ‘green’ credentials.

Substantial increases in tobacco and alcohol duties (including, for the first time in some years, a substantial increase in the tax on spirits) will not be popular, nor will the proposed plastic bag tax announced for next year.

Benefits

Child Benefit will rise to £20 for the first child. Also, as widely trailed previously, by April 2010 all long-term recipients of incapacity benefits will face work assessments.

Income Tax

The reduction in the basic rate of tax to 20 per cent and the abolition of the 10 per cent rate announced previously were confirmed. Personal allowances etc. have been increased in line with inflation as usual.

The proposals to tax non-domiciliaries on their UK income, announced in the autumn statement (and amended subsequently), have been confirmed but there are changes in the tax applicable to foreign dividends and dividend tax credits on some foreign income. The limit for excluding disclosure of foreign source income for ‘non-doms’ has been doubled to £2,000.

You will also be able to use your credit card to pay your tax liability! However, HM Revenue and Customs will be able to offset the repayments it must make to individuals and businesses against the payments it is owed by them.

One change which was kept quite quiet is that restrictions on the use of trading losses for individuals have been brought in without waiting until 5 April, which will restrict the use of such losses to reduce tax on other income with immediate effect. Restrictions will apply both to the circumstances when such losses can be used and the amount which can be so used.

Capital Taxes

Capital Gains Tax

The abolition of taper relief and indexation relief has been confirmed as well as the new flat rate of 18 per cent for chargeable gains.

Inheritance Tax (IHT)

As announced in the 2007 pre-budget statement, if an individual’s IHT nil-rate band is not used up on their death, the unused proportion can be transferred to their surviving spouse or civil partner. This has widely been reported as a doubling of the ‘IHT-free’ amount, but in many cases the uplift of the IHT-free amount on the second death will be far less and this change certainly does not mean that IHT planning is no longer important where substantial assets are concerned.

Motoring

Surging oil prices mean that the Chancellor has opted for the safe course of not implementing the expected 2p per litre price increase, although fuel duty will in due course rise by 0.5p per litre. This is much less generous than it might seem as the price rises which have already taken place mean that the additional tax revenue per litre has risen substantially. The tax regime on motoring is being revamped so that cars which have lower emissions of carbon dioxide will be taxed more lightly and the heaviest producers will pay more.

Those of you who tried to be environmentally aware and bought biofuel cars will see the duty differential on biofuel disappear from 2010/11, making it the same price as petrol.

Property

Stamp Duty Land Tax (SDLT) – originally introduced to create tax revenue from commercial property transactions is being introduced to the private market with the announcement that ‘a measure will be introduced later in 2008, with the precise date to be determined after further consultation, to extend the SDLT disclosure rules to residential property costing £1 million or more.

Investment

Investors making use of the Enterprise Investment Scheme (EIS) will welcome the announcement that the maximum allowable EIS investment is being increased from £400,000 to £500,000 per annum. The range of permitted investments has also been expanded.

Tax Powers Generally

Tucked in page 228 of the Budget Notes is a list of changes in the powers the tax authorities will have in order to obtain information about a taxpayer’s affairs. It makes somewhat worrying reading and includes the power to require third parties to provide information which is relevant to establishing a taxpayer’s correct tax position and the introduction of a criminal offence of destroying or concealing records requested under a notice authorised by a tribunal