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A summary of the main changes contained in the 2008 Budget:

Income Tax Rates & Allowances

A number of changes announced in last year’s Budget will come into effect from 6 April 2008 (the 2008/9 tax year):

* the basic rate of Income Tax falls from 22 per cent to 20 per cent
* the 10 per cent starting rate of Income Tax is abolished
* the personal allowance increases to £5,435; the age-related personal allowances rise to £9,030 for people aged between 65 and 74, and to £9,180 for those aged 75 and over

The overall annual investment limit for ISAs rises to £7,200, of which £3,600 can be in cash, from 6 April 2008.

The ten pence starting rate of tax is removed for non savings income and replaced with a new ten pence starting rate for savings income with a rate limit of £2,320.

National Insurance

National insurance contribution (NIC) rates and thresholds for 2008-09 were announced in the 2007 Pre-Budget Report. The starting point for employers’, employees’ and self-employed NICs in 2008-09 will increase in line with inflation to £105 per week. NICs are not paid on earnings or profits below this amount. The upper earnings and profits limits for NICs will increase from April 2008 in line with inflation from £670 to £770 per week. For the self-employed, the rate of Class 2 contributions will increase to £2.30 per week.

Capital Gains Tax

The capital gains tax (CGT) annual exempt amount is increased to £9,600 for the tax year 2008-09 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is increased to £4,600.

For 2008-2009 it is proposed that there will be a single rate of Capital Gains Tax of 18% for individuals, trustees and personal representatives on taxable gains.

Inheritance Tax

Previous Budgets announced Inheritance Tax allowances - for 2008/09, the allowance is £312,000 for individuals and £624,000 for married couples and civil partners.

Corporation Tax

The Chancellor confirmed that the main corporation tax rate will reduce to 28% with effect from 1 April 2008. A rate of 30% will continue to be charged on ring-fenced profits.

Capital allowances

As announced in the 2007 Budget, from 1 April 2008 changes will apply to the capital allowances regime for companies. These include a phasing out of industrial buildings allowances, a reduction of allowances for plant and machinery to 20% and a new classification of features integral to a building with a writing down rate of 10%.

Measures have been announced to widen the availability of enhanced capital allowances for businesses investing in technology to reduce energy consumption, save water or improve water quality. Existing relief for expenditure on natural gas, biogas and hydrogen refuelling equipment will also be extended.

Legislation will be introduced in Finance Bill 2008 to extend 100% first year allowances for expenditure on cars with low CO2 emissions.

As announced in the 2007 Budget, Finance Bill 2008 will introduce a payable tax credit for losses from expenditure on green technologies.

Research and development

Budget 2007 announced a package of business tax reforms which included an increase in the rate of R&D relief for all companies. Legislation will be introduced in FB 2008 to increase the rate of relief for large companies from 125% to 130% and for small and medium companies from 150% to 175% (capped at €7.5m). The proposals are subject to approval from the EC.

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