Home > > 21 March 2007 Budget Report > Personal Taxation

Personal Taxation

Personal term assurance
Pre-owned assets (POA) and late elections
Dividends from non-UK resident companies
Service charges and sinking funds in the private sector
Overseas homes purchased through a UK company
Double charge to tax on car/car fuel benefits
Company car and fuel benefit tax
Landlords energy savings allowance (LESA)
Revenue and Customs' powers, penalties, enquiry window and filing deadlines

The Chancellor proposes to reduce the basic rate of income tax to 20% with effect from 2008/09. It is also proposed that the starting rate be removed for earned income and pensions but not for savings income or capital gains.

The upper earnings limit for employees' Class 1 national insurance and the Class 4 national insurance upper profits limit for 2008/09 will be increased by £75 per week above indexation.

Income Tax Rates
		2007/08	2006/07
Starting rate band to		£2,230	£2,150
Tax rate		10%	10%
Basic rate band - next		£32,370	£31,150
Non-savings rate		22%	22%
Savings rate		20%	20%
UK dividend rate		10%	10%
Higher rate - income over		£34,600	£33,300
Tax rate excluding UK dividends		40%	40%
UK dividend rate		32.5%	32.5%
Personal Allowances
Ages are as at the end of the tax year
Allowances that reduce taxable income		£	£
Personal allowance	under 65	5,225	5,035
	65 to 74*	7,550	7,280
	75 and over*	7,690	7,420
Allowances that reduce tax
Married couple's allowance (MCA)
Age of elder spouse	73 to 74	628.50	606.50
	75 and over*	636.50	613.50
	minimum	244.00	235.00

Personal term assurance

"The Chancellor does not find himself reforming his own reforms of the tax system. The 10p income tax rate was his idea, he took credit for introducing it, and now takes credit for abolishing it and using the money to reduce the basic rate of income tax"

Evan Davis BBC Economics Editor's Evanomics

Measures were announced to remove an individual's entitlement to tax relief on any pension contributions made that are used to fund personal term assurance policies.

For contributions to occupational registered pension schemes the measures will affect all contributions made on or after 1 August 2007 in respect of personal term assurance policies, unless the insurer received the application for the policy before 29 March 2007 and the policy was taken out as part of the pension scheme before 1 August 2007. For contributions under other registered pension schemes, it will take effect for all contributions on or after 6 April 2007 in respect of personal term assurance policies, unless the insurer received the application before 14 December 2006 and the policy was taken out as part of the scheme before 6 April 2007.

Pre-owned assets (POA) and late elections

With effect from 21 March 2007 HM Revenue and Customs will be allowed to accept late elections for assets, which would otherwise be subject to the POA regime, to be included instead in an estate for IHT purposes.

Dividends from non-UK resident companies

From 6 April 2008 individuals in receipt of dividends from non-UK resident companies will also be entitled to a non-repayable dividend tax credit subject to certain conditions.

Service charges and sinking funds in the private sector

With effect from 6 April 2007 an existing relief from the special trust rate of tax will be extended to all landlords required to hold service charge and sinking fund payments made by tenants and leaseholders on trust. It is proposed that the rate of tax applicable to interest earned on such deposits be 20%.

Overseas homes purchased through a UK company

The Chancellor proposes to include in the 2008 Finance Bill measures to exclude from the benefit-in-kind charging provisions directors who have use of an overseas property owned by a company whose sole activity is to hold the property. Draft legislation will be published later this year for consultation. HM Revenue and Customs will not seek to tax anyone in the intervening period and will not seek tax for previous years where the following conditions are met:

The property is owned by a company owned by individuals;
The company's only activities are ones that are incidental to its ownership of the property;
The property is the company's only or main asset; and
The property is not funded directly or indirectly by a connected company.

"The wholesale removal of an income tax band - at least for earned income - and the further alignment of income tax and National Insurance thresholds are welcome simplifications. But they raise the question of whether a much greater simplification could be achieved by fully integrating income tax and National Insurance"

Stuart Adam Institute of Fiscal Studies

Double charge to tax on car/car fuel benefits

There is currently a possible double charge to income made on benefits provided to employees earning up to £8,500 where car/car fuel benefits have been subsidised by the use of a credit card provided by the employer. Legislation will be introduced to remove this double charge, which is currently exempt from tax by concession. The measure will have effect from 6 April 2007.

Company car and fuel benefit tax

A Treasury Order is to be placed before Parliament before the summer recess to introduce with effect from 6 April 2008 a 2% discount for company car drivers who drive a car which is capable of being run on E85 fuel.

Landlords energy savings allowance (LESA)

LESA is to be extended to include expenditure on floor insulation. A deduction of up to £1,500 will be available for each property rather than each building and the allowance will be available until 2015.

Landlords paying income tax will benefit under these measures for all expenditure incurred on or after 6 April 2007. The allowance will be made available to landlords paying corporation tax on expenditure incurred after state aid approval is received.

Revenue and Customs' powers, penalties, enquiry window and filing deadlines

At a date set by Treasury Order, likely to be before the end of 2007, HM Revenue and Customs is to be provided with consistent powers and safeguards for criminal investigations.
A single new penalty regime for incorrect returns for income tax, corporation tax, PAYE, NIC and VAT, is to be introduced from a day appointed by a Treasury Order , expected to be for return periods commencing after 31 March 2008 where the return is filed after 31 March 2009. The Chancellor proposes that in all cases the penalty be determined by the amount of tax understated, the nature of the behaviour giving rise to the understatement and the extent of disclosure by the taxpayer. It will also introduce a new concept of suspended penalties.
Changes will be made to the enquiry window for both personal tax returns and company returns, excepting large groups of companies. The Chancellor proposes to link the closure of the enquiry window with the date the return was received by HM Revenue and Customs, so that for returns filed before the filing deadline the enquiry window closes at an earlier date. This measure will affect self assessment returns for 2007/8 and subsequent years and company tax returns for accounting periods ending after 31 March 2008.
Lord Carter's revised recommendations for the filing of self assessment returns were accepted by the Government in July 2006. For tax returns issued after 6 April 2008, relating to the tax year 2007/8 and subsequent years the deadlines for filing will be changed. Paper copies of returns will have to be submitted no later than 31 October following the tax year. Online submissions will have to be made no later than 31 January following the end of the tax year. HM Revenue and Customs will calculate the liability for taxpayers who submit returns by 31 October following the end of the tax year. The period during which a return can be amended will still be linked to 31 January anniversary date for all paper and online returns.