Personal taxes

Income tax

As announced previously, the personal allowances for those aged:

• under 65 will increase from £5,225 for the 2007/8 tax year to £5,435 for the 2008/09 tax year;
• between 65 and 74 will increase from £7,550 for the 2007/8 tax year to £9,030 for the 2008/09 tax year; and
• over 74 will increase from £7,690 for the 2007/8 tax year to £9,180 for the 2008/09 tax year.

Income tax rates

As previously announced, from April 2008, the existing 10% starting rate of income tax will be abolished for earned income although it will continue to be available for savings income in certain very limited circumstances. The basic rate of income tax will be reduced from 22% to 20%. For 2008/09, the basic rate band limit will be £36,000.

Taxation of personal dividends

Legislation will be introduced in Finance Bill 2008 (FB 2008) to enable UK resident individuals and UK and EEA nationals who own less than a 10% shareholding in a non-UK resident company to be entitled to a nonpayable tax credit of one ninth of the distribution in certain situations. Legislation in Finance Bill 2009 will further extend eligibility where an individual owns a 10% or greater shareholding in a non-UK resident company. The previously announced condition that an individual must receive less than £5,000 of dividends a year from non- UK resident companies will not be introduced.

Gift Aid

To offset the impact of the drop in basic rate income tax to 20%, a transitional relief supplement of 2% will be available for charities and community amateur sports clubs making Gift Aid repayment claims between 2008 and 2011.

Double taxation relief

Legislation will be amended to clarify that the maximum credit available against UK income tax in respect of foreign taxes will be no more than the UK income tax due in respect of the same earnings.

Inheritance tax

The nil-rate band for inheritance tax (IHT) will be increased from £300,000 to £312,000. Certain other clarifying provisions were announced regarding the transfer of any unutilised nil-rate band exemption to surviving spouses or civil partners.

Enterprise management incentives

To ensure compliance with EU State aid guidelines legislation will be introduced in Finance Bill 2008 to limit Enterprise Management Incentives (EMI) schemes to companies with fewer than 250 employees. Companies involved in shipbuilding, coal and steel production will no longer quality for EMI.

Pensions

A number of technical improvements were made to provisions previously announced, as well as measures announced today which will be introduced to ensure UK tax relief on contributions to non-registered pension schemes based outside the UK is calculated appropriately.

Residence and domicile

The new rules arrived as expected. After 6 April 2008 certain non-domiciled individuals who have been in the UK more than seven of the past 10 years, will be able to continue to access the remittance basis of taxation only on payment of an annual charge of £30,000, unless their unremitted foreign income and gains are less than £2,000. The charge should be treated as income or capital gains tax under double taxation agreements and will be available to cover Gift Aid donations. Individuals will be able to choose each year whether they want remittance basis or not.

Individuals claiming the remittance basis will not be entitled to any personal income tax allowances or the annual exempt amount for capital gains, again unless unremitted foreign earnings are less than £2,000 a year.

Further detailed provisions were announced regarding the interaction of these new rules and the taxation of income and gains from Employment Related Securities. And to complete the package certain anti-avoidance measures were included to close what HMRC viewed as loopholes in the remittance basis of taxation. However, some of the worst features contained within the detail of the draft rules were not introduced.

Residence test and day counting rules

As expected, on and after 6 April 2008, any days where an individual is present in the UK at midnight will be counted as a day of presence in the UK for residence test purposes. This is a welcome amendment to the possibility of all days of arrival and departure being counted towards residence.