Have I imagined it or is the basic rate personal tax band falling from 22% to 20%?
I just mentioned it in passing and no-one else has heard about it. But I definetely heard it somewhere! Or was it in a dream...?
Thomas Peterson
Replies (28)
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So we finally know the definitive answer .....
https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=180711&d=1032&h=1058&f=1026
"There will be a new 10% starting rate for savings income only, with a limit of £2320.
If an individual’s taxable non-savings income is above this limit then the 10% savings rate will not be applicable.
There are no changes to the 10% dividend ordinary rate or the 32.5% dividend upper rate."
Now I am definitely going mad
I read in yesterdays' Times "the 10% band will be scrapped from April 6."
On Friday, a big firm of accountants also said the same in a press release which I queried with them and they replied "Oops".
I am hoping that the Times is wrong too, anyone read anything similar elsewhere?
No, I am not mad!
2007 Budget Note 1:
"The starting rate will be removed for earned income and pensions but will
continue to be available for savings income and capital gains. There are
no changes to the rates applicable to dividends."
The Treasury:
“Budget 2007 announces the next stage in the Government’s reforms to simplify the tax system, to provide help for pensioners, support families and make work pay. The Government will:
- remove the 10 pence starting rate of income tax and cut the basic
rate of income tax from 22 pence to 20 pence from April 2008;"
I think I have seen it all! What do we reckon is the correct answer?
Its a style thing
The signature of this government is announcing things time and time again - so it's no wonder we get confused when we hear a proposal we're sure we already heard. Undoubtedly a centrepiece of Alistair's budget on Wednesdat will be an announcement that the main rate of CT will go down to 28%, notwithstanding the fact that his boss announced it last year, included in the FA2007, and then Alistair mentioned it again in his PreBudget Report. With bad news thay want to mention it once but implement a year or so on hoping that by the time it happens we'll forget who introduced it. There was no reason why the alteration to the basic rate of IT and the abolition for most, and for most practical purposes of the 10% band should not have been in last year's FA - but if it had been we would know who to blame. Now its quietly put in the red book as part of this year's budget resolutions, probably not mentioned by Alistair because this was his predecessor's measure, and implemented on the first pay day in May as per, with muggins in the street no wiser, but convinced that he or she will be better off because Alistair will finish his budget speech by repeating Gordon's promise to reduce the basic rate by 2p. Am I getting too cynical? I think governments should either announce and implement immediately or take their time and consult extensively before announcing and implementing. The Labour party have always been too interested in spin ever since the demise (politically) of Kinnock.
Read further down
In the midst of my seven week cold (how do I get rid of this?) I suggested that the 10% band was being abolished for all income, which of course it isn't - hence the apology for potentially misleading. How a supposedly labour government further penalises earned income and gets away with it beats me.
What are you appologising for Paul?
If a 45 year old has earned income of more than 7665.00 and has savings income of £2000.00 they will pay tax on their savings at 20% (and not be due that long awaited refund).
How is that going to encourage the low earner with savings to earn more? Will they be trapped into staying on working tax credit?
Sorry My Mistake
The 10% rate band does remain for savings income - broadly everything that used to be taxed under Schedule C and DIII. However if you other income - earnings, pensions, property etc equal to allowances plus the 10% band you don't get the benefit of the 10% band. So for practical purposes very, very few people will actually get it.
But the 10% band has not been lost for savings income.
It remains, and so if you have tax deducted at source it is done so at 20% and you get a refund if it is either all covered by your personal allowances or part falls into your 10% band.
Paul and Steve.....
You seem to be the only ones picking up on the loss of the 10% band for savings income. It is my understanding that anyone earning more than the personal allowance + the 10% band will be taxed as 20% on all their savings income.
Therefore savings income will continue to be taxed as 20% at source.
I wonder how long it will take for a low earner with savings taxed at 20% to obtain a refund on the tax on their savings income.
Rental Income
So does this mean that rental income could be taxed at 10% but income from short-term furnished lettings at 20%.
As some said before, us accountants love simplifications such as these.
Rental income - qui sera sera
Rental income is clearly not 'earned income' unless it derives from a furnished holiday letting, but nor is it savings income.
Under the existing regime we tend to bundle it in with earned income and call it 'general income'.
We will have to wait and see what the Finance Bill 2008 says but my money is on the 10% band only applying to interest (and of course dividends).
There will not be a 10% CGT band of course - it will be 18% with any qualifying assets getting a reduction of 4/9ths of the gain to give an effective rate of 10%. That's nice and easy then isn't it?
Hasn't it always been like this ?
It strikes me that goverments always take their lead from Matthew 25: verse 29 in the bible.
"For to everyone who has, more shall be given, and he will have an abundance; but from the one who does not have, even what he does have shall be taken away.
It's no different now to 2000 years ago.
Roger Neale
If both earnings and savings income ?
So if you have a salary or pension of say £15K (enough to put you well into basic rate territory) and savings interest of £5k - do you get the 10% band on any of this savings interest, or is the tax on interest calculated after the tax on earnings, so it's all at basic rate ?
If (as I suspect) the latter, then there can't be many people at all who will ever see the 10% tax band in future.
What about rental income?
What rate is rental income charged at? It is not savings income, earnings, pensions or dividends - so does it continue to get the benefit of the starting rate?
The originlal Budget Notice said
"The starting rate will be removed for earned income and pensions but will continue to be available for savings income and capital gains. There are no changes to the rates applicable to dividends."
No mention of rental income!
Although this was announced nearly a year ago I assume we will have to wait untill the 2008 Finance Bill to find out.
No Dream!
No you are right.
From 6 April the basic rate band for non-savings income is falling to 20% and the starting rate band of 10% is being abolished.
The rich get richer.
On the face of it higher earners benefit and the poorer get worse off.
The big tax saving for the government is probably from having pension credit reduced from 22% to 20% and also charity gift aid credit reduced by the same amount.
AccountingWEB budget summary
2007 Budget and PRB summary
Don't forget that the starting rate of 10% only goes for earned income and pensions.
Don't forget also
That the upper earnings limit is increasing by £100 p.w. from £670 to £770, so that will wipe out any saving from the basic rate reduction for many of us.
Yes
At the bottom of this tax calculator: http://www.pru.co.uk/home/calculator/income_tax/
it confirms that "From 6 April 2008 the basic rate of tax will change to 20%"
Left hand and right hand
Just to make sure they don't benefit anyone a low earning person on tax credits will be hit twice over as they lose more from the loss of the 10% band than they gain through the reduction of the basic rate but... the clawback rate for their tax credits where they earn some income is going up from 37p to 39p in the pound. So as a low earner the government take the goldmine and you get the shaft... Socialism?
Confusion all round...
The 10% does also disappear for gains, apart from when you also get 10% for CGT effectively under Entrepreneur's relief.
This government's take on tax simplification is priceless!
Paul
I think Nichola's right. See Budget Note BN01 http://www.hmrc.gov.uk/budget2007/bn01.pdf
As I read it, Note 3 within BN01 states the 10% rate will remain for savings income (ie including bank/building society interest)
10% rate
Nicola - I think you'll find that the 10% starting rate disappears for all forms of income and would have done for gains had the 18% reform been introduced. The 10% rate survives for dividends, but for dividends it is the basic rate. See 2007 Budget press release PN01.
First income threshold
Paul, I agree the withdrawal rate has gone up from 37% to 39% but also, the First income threshold has gone up from £5,220 to £6,420.
I think this means that low paid people will generally be better off. Someone earning £6,420 in 2007/08 and 2008/09 will be better off in the second year by £444 in tax credit terms. In tax terms they will be £77.50 worse off.
But then a lot of low paid earners will be unaffected by tax credits especially where they are married and the family income is such that they receive the standard £540 per year.
reduction
Yes - Gordon Brown mentioned it in his last budget before becoming
Prime Minister.
From memory, he actually gave us a 5 year plan, announced all the personal allowances, petrol increase etc etc etc..... for the next 5 years from then...
All Darling is doing now are the "tweaks" and extras!