Budget Comment March 2007
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 |
5,035 |
5,225 |
190 |
| Income limit for age-related allowances |
20,100 |
20,900 |
800 |
| Married
couple's allowance for people born before 6 April
1935 |
6,065 6,135 2,350 |
6,285 6,365 2,440 1,730 |
220 230 90 |
| Capital gains tax annual
exempt amount: |
8,800 |
9,200 |
400 |
| 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 |
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 |