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Budget Comment March 2007

This is our 8th Budget Comment and there’s one thing they all have in common – Gordon Brown …

We’re not going to comment on the changes that take place after 5 April 2008 – other than to ask why he lays out these future changes. He won’t be Chancellor, Labour might not be in power and it merely buries this year’s changes below headlines of the ludicrously misleading 20% basic tax rate.

And let’s not comment on the really technical and the ‘not of general interest’ stuff.

That just leaves the changes he made last year that come into effect this year.

The most interesting of which is the increase in the Inheritance Tax threshold and in true Gordon style we can look ahead 4 years. So let’s do so – it is after all a tax that most will now come across. The tax free amounts are:

  • Year ending 5 April 2007: £285,000
  • Year ending 5 April 2008: £300,000
  • Year ending 5 April 2009: £312,000
  • Year ending 5 April 2010: £325,000
  • Year ending 5 April 2011: £350,000

Not bad increases compared to the recent past but why save the biggest change to last and again why go that far ahead anyway? Inheritance Tax is an area of significant concern to many people – have a look at our comment on Inheritance Tax on the News & Comment page.

As for the 2007 Budget, you are bound to have heard other comments, please let us know if you have any observations or need further information.

Finally; why do we say that the 20% tax rate is ludicrously misleading? Because in two years time his blending of Income Tax and National Insurance will be complete. Combining the two, there will then be three rates on earned income for people under 65:

  • The first (say) £5,500: nil
  • The next (say) £37,500: 31%
  • Anything above: 41%

The 20% rate is nowhere to be seen!

Rates and Allowances for 2007 and 2008

Rates and allowances for income tax, corporation tax, capital gains tax, inheritance tax and the pension schemes earnings cap are set out below.

2006-07 (£)

2007-08 (£)

Increase (£)

Income tax allowances

Personal allowance
Personal allowance for people aged 65-74
Personal allowance for people aged 75 and over

5,035
7,280
7,420

5,225
7,550
7,690

190
270
270

Income limit for age-related allowances

20,100

20,900

800

Married couple’s allowance for people born before 6 April 1935
Married couple’s allowance –aged 75 or more
Minimum amount of married couple’s allowance
Blind person's allowance

6,065

6,135

2,350

1,660

6,285

6,365

2,440

1,730

220

230

90

70

Capital gains tax annual exempt amount:
Individuals etc
Other trustees

 

8,800
4,400

 

9,200
4,600

 

400
200

Inheritance tax threshold

285,000

300,000

15,000


Taxable bands 2006-07 (£)

Taxable bands 2007-08 (£)

Starting rate 10%

0 – 2,150

Starting rate 10%

0 – 2,230

Basic rate 22%

2,150– 33,300

Basic rate 22%

2,230– 34,600

Higher rate 40%

Over 33,000

Higher rate 40%

Over 34,600


Corporation tax profits 2007-08 (£)

 

Small companies' rate 19%

0 – 300,000

Marginal relief

300,001 – 1,500,000

Main rate 30%

1,500,001 or more

The main rate of corporation tax for 2007-08 will be 30 per cent.

National Insurance changes from 6 April 2007

2006/2007

2007/2008

 Class 1 Employees

On first

£97 pw

Nil

£100 pw

Nil

Between

£97 - £645 pw

11%

£100 - £670 pw

11%

Over

£645 pw

1%

£670 pw

1%

Employee's contracted-out rate 1.6%   1.6%
Married womans
reduced rate
4.85% of £97.01 to £645 pw, 1% above £645 4.85% of £100.01 to £670 pw, 1% above £670

 Class 1 Employers

On first

£97 pw

Nil

£100 pw

Nil

Over

£97 pw

12.8%

£100 pw

12.8%

Employers' contracted-out rebate, salary related schemes 3.5%   3.7%
Employers' contracted-out rebate, money purchase schemes 1%   1.4%

Class 2 Self employed

Flat rate £2.10 pw   £2.20 pw
Small earnings exception 4,465 pa   4,635 pa
Special Class 2 rate for share fisherman £2.75 pw   £2.85 pw
Special Class 2 rate for volunteer development workers £4.20 pw   £4.35 pw

Class 3 Voluntary

 Flat rate

£7.55 pw

£7.80 pw

 Class 4 Self employed

On profits between

£4,895 - £32,760 pa

8%

£5,225 - £34,840 pa

8%

 

above £32,760

1%

above £34,840

1%

Stamp Taxes

Transfers of property (consideration paid)

Rate
All land in the UK
Land in disadvantaged areas
  Residential Non-residential Residential Non-residential
Zero £0-125,000 £0-150,000 £0-150,000 All
1% Over £125,000 – 250,000 Over £150,000 – 250,000 Over £150,000 – 250,000  N/A
3% Over £250,000 – 500,000 Over £250,000 – 500,000 Over £250,000 – 500,000  N/A
4% Over £500,000 Over £500,000 Over £500,000  N/A
New leases (lease duty)

Duty on the premium is the same as for transfers of land (except that special rules apply for premium where rent exceeds £600 annually). Duty on the rent is charged on the Net Present Value (NPV). The rates indicated apply to the amount of NPV in the slice, not to the whole value.

Rate
Net Present Value of Rent Rate
  Residential Non-residential
 
Slice of NPV
Zero £0 - £125,000 £0 - £150,000
1% Over £125,000 Over £150,000

The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5% for 2007-08.