Budget 2008

Mr. Darling delivered his first Budget as Chancellor on the 12 March.  The speech lasted some 50 minutes.  This is quite a short speech by Budget standards.  The shortest Budget speech ever was by Disraeli in 1867 which took 45 minutes.  The longest, in 1953 by Chancellor Gladstone lasted 4 hours 45 minutes.  The fact is that the Chancellor had very little to say,I do believe that Budgets these days are spoiled by the insistence of autumn statements, pre-Budget statements and the usual leaks.

Much of what the Chancellor had to say has been known for some time.  The Budget confirmed the autumn statement on inheritance tax, and the ability of married couples and civil partners to benefit from any unused allowance by their spousal/civil partner on first death.  The threshold for 2008/09 increases from £300,000.00 to £312,000.00, and then in 2009/10 to £325,000.00 and then in 2010/11 it will be £350,000.00.  The rate of tax remains at 40%.  The Government estimates that 5% of estates will pay inheritance tax in 2008/09.

There are no changes to the previously announced capital gains tax regime.  As from 6 April 2008, indexation allowance and taper relief, will be abolished, and there will be one flat rate of tax of 18%.  The annual exempt amount increases in line with statutory indexation to £9,600.00 for the new tax year for individuals.  It is worth noting that everyone, including children has his or her own £9,600.00 annual allowance.

On income tax the personal allowance for under 65’s increases to £5,435.00.  The basic rate of income tax has been reduced from 22p to 20p,and the base rate tax limit increases to £36,000.00.  Anything over that is taxed at 40%.  There are the usual increases in National Insurance contributions.  Equally predictably the price of booze and fags has increased, and there has been attacks on the motor car, with increases in fuel duty (deferred until October), new vehicle excise duty rates and bands, supposedly to reflect the cars emissions, and in due course, there will be what is being called a showroom tax, so that there will be one off tax on new cars dependent upon their emissions levels.

Much is made of the intention to tax non domiciles, those people who reside in the UK for long periods of time, but whose main assets are abroad.  Generally the non-doms are taxed on overseas income if it is remitted to them in the United Kingdom.   So long as income and gains are not remitted to the United Kingdom, then they pay tax only on income which arises in the United Kingdom.  They have decided to make an annual charge of £30,000.00 to non domiciles.  The tax can be avoided this by electing to pay tax on their overseas income.  The tax arises after a non-dom has been resident for 7 years and in a last minute change in the Budget the Chancellor has agreed that this can be treated as a tax payment by the individual which may permit it to be off set against foreign taxes. It has been suggested that this will result in an exodus from England of wealthy foreigners, but that is unlikely.

Surely the daftest issue in the whole Budget, and the biggest red herring of them all, is the Chancellor’s talk of plastic bags.  He says that if stores do not take action to reduce our dependency upon plastic bags then the Government will tax them.  How very predictable!  Perhaps they should take a lesson from the French. I regularly use a supermarket in Provence called Intermarche near the village of Mallemort.  In typical French style I turned up one day to do some shopping to discover that plastic bags were no longer available.  There was no discussion, there was no consultation, it was a fait accompli.  Plastic bags were replaced almost overnight by larger bio-degradable bags which one could purchase.  The problem is that, being English, and being used to having plastic bags thrown at me every time I go to the store; I forget and end up buying a new bio-degradable bag on each visit.

Surely this has nothing to do with the Chancellor, nothing to do with tax.  If the stores want to do it they could do it overnight, but it is a very useful red herring, because on the day after the Budget the press were gripped by plastic bags, rather than the more important relevant issues.

David Endicott
Managing Partner
Spratt Endicott Solicitors