Darling giveth and Darling taketh away

Mar 19, 2008

How might April’s changes to the income tax band affect me?

Judith Hooper (pictured): The biggest change that the new tax year will bring is a two per cent reduction in basic rate income tax to 20pc. However, the government has balanced the drop with the abolition of the 10pc band.

This will have a negative impact on the take-home wages of part-time workers or those on very low incomes. The changes also have implications for those who are expecting to receive bonuses or incentive payments.

Broadly speaking, it would be best to defer such payments until after April 5 2008, when they will be taxed at the lower rate.

How will company car drivers be affected in the new tax year?

A recalibration of the fuel emissions table means most company car drivers will pay more tax in 2008-09, while a rise in the free-fuel basis value (from £14,400 to £16,900) will result in higher tax bills for those who are given petrol or diesel allowances covering private motoring.

Companies and employees should examine the car ownership and fuel benefit options to select the most tax-efficient solution.

Will I lose out if I cannot meet the April 6 capital gains tax deadline?

Few of the government’s proposed tax reforms have been quite as controversial as the decision to simplify the capital gains tax regime.

While the standard CGT rate is set to fall from 40pc to 18pc from April 6 this year, taper relief is also to be abolished, along with individuals’ and trustees’ indexation allowance on assets owned before April 1998.

These changes have prompted many to consider selling assets that qualify for business taper relief before the April 2008 deadline. But, with little time left to complete transactions, anyone selling a business or company shares may be under pressure to accept a lower price than usual.

This is unnecessary. If the value of taper relief is great enough, there are measures to preserve the benefit without compromising price.

In addition, business asset sellers can consider deferring payment of CGT by reinvesting their chargeable gains in a company that qualifies for the Enterprise Investment Scheme Deferral Relief.

The deferral scheme is not as advantageous as the normal Enterprise Investment Scheme that provides relief at 20pc from income tax relief and exemption on future gains. However, the maximum investment limit of £400,000, as in the normal EIS, does not apply to the EISDR.

For further information please contact Judith Hooper on 01908 687800, email judith.hooper@bakertilly.co.uk or visit www.bakertilly.co.uk

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