The key points from Alistair Darling’s 2008 Budget are outlined below for your information.

Personal and Employee Tax

There were few unexpected changes to the tax regime, after the major announcements made in the Pre Budget statement last October. With effect from 6th April:

• The basic rate of tax falls to 20% from 22%
• The existing starting rate of 10% is abolished. 
• The basic personal allowance increases to £5,435 and the age-related allowances increase by £1180 more than the rate of inflation. 
• The higher rate of tax remains at 40%.
• The value of share options that may be awarded under The Enterprise Management Incentive (EMI) scheme is increased from £100,000 to £120,000 but they will be limited to qualifying companies with fewer than 250 full-time employees. 
• Dividends from non-UK resident companies will be treated in the same way as UK company dividends where the shareholder owns less than 10% of the non-resident company. 
• From 2010-11, company cars will be taxed under a stricter regime penalising cars emitting greater levels of CO2.

Corporate and Business Tax

• Annual allowances on plant and machinery have been reduced from 25% to 20%.
• A new category of asset has been created for capital allowance purposes. So-called "integral features" will attract a special rate of annual allowance of 10%. These assets are incorporated into a building such as lifts; boilers; air conditioning and solar heating equipment etc.
• Owners may now have an opportunity to revisit capital expenditure which incurred in previous years to identify potential claims.
• Entrepreneurs' Relief - a throwback to Capital Gains Tax retirement relief, abolished in 2003 - will apply to "qualifying business disposals" taking place on or after 6 April 2008. The relief offers an effective rate of 10% on the first £1m of gains arising after 5 April 2008.

According to Graham Morgan, partner at Kingston Smith LLP, “Entrepreneurs in the advanced stages of negotiating a sale of their business, where gains will significantly exceed £1m, have the opportunity to "bank" their taper relief, and to achieve a 10% rate on the whole of the gain. However, in order to do this they need to move quickly!

“Tax avoidance was also highlighted in today’s Budget. The Chancellor announced a number of changes designed to block complex tax avoidance schemes. However, the ingenuity of the providers knows no bounds, and there will no doubt be new schemes on the stocks as you read this.”

VAT

• Claims are invited for tax errors arising during the period 1st April 1973 to 1st May 1997. These must be submitted by 31 March 2009.
• The thresholds for registration are up from £64,000 to £67,000 and deregistration are up from £62,000 to £65,000 from 1 April 2008.
   

Inheritance Tax and Trusts

• Any unused part of the Inheritance Tax Nil Rate band on a person’s death will be transferred to the estate of their spouse or civil partner, as set out in the Pre Budget statement. 
• The changes to the Inheritance Tax treatment of trusts made by Finance Act 2006 allowed a period in which certain trusts could reorganise. For accumulation and maintenance trusts this period still ends on 5th April this year but the period for reorganising interest in possession trusts has been extended to 5th October 2008.
• The tax treatment of those reorganisations and certain other changes has been clarified.

Gift Aid / Substantial Donors

According to Nick Brooks, partner at Kingston Smith LLP, “There was some good news in the Budget for charities. The reduction in basic rate income tax from 22% to 20%, announced last year, from 6 April 2008, which would have given rise to a significant reduction in income for some charities, is subject to transitional provisions. These will apply for gift aid payments made by individuals after 6 April 2008 until 5 April 2011. For this period the gift aid payments will be processed as previously but using the new 20% basic rate. However, the charity can then claim a transitional relief payment for the gift aid payment at 2%. The net effect will be that the Charity should be able to claim, until 5 April 2011, exactly the same amount of tax as if the rate was still 22%.”

• A number of administrative changes to gift aid were also proposed.
• The Government will be consulting with charities on anti-avoidance legislation relating to substantial donors to simplify the system for charities and prevent innocent transactions from being caught.

Non Domiciliary Changes

Alan Craddock, partner at Kingston Smith LLP comments, “The 2008 Budget has provided some welcome relief to the severity of some of the expected changes but there will still be some profound changes.”

• Whilst the rate of tax on dividends chargeable on a remittance basis increases to 40%, non UK domiciliaries who elect to remain within the remittance basis of taxation (if they decide to pay the £30,000 annual tax charge applicable to longer term non domiciliary UK residents) will still be able to bring into the UK, assets owned at 11 March 2008, that have been purchased out of foreign income (excluding capital gains and employment income), without a remittance arising until those assets are sold.  This equally applies to assets in the UK at 5 April 2008 that have been purchased out of foreign income.  
• It has been confirmed that for US tax purposes the £30,000 annual tax charge should be creditable for US tax purposes.

If you would like to speak to one of our tax experts regarding any of the issues raised in this year’s Budget, which affect you or your organisation, please contact us on: 020 7566 4000.