Budget 2008: Personal taxes and finances

The main personal tax issue of the Budget was the Chancellor’s confirmation that, as of April, the main rate of income tax is to fall from 22 per cent to 20 per cent.

As widely predicted, Mr Darling announced that the fuel duty increase of 2p per litre, due on 1 April, has been postponed for six months.

The Chancellor stuck to his guns on planned changes to the tax regime governing non-domiciles. Non-doms who have lived in the UK for seven years will be required to pay a flat charge of £30,000 to maintain their tax status.

However, the Treasury has made some changes to the original proposals following consultations. The charge will be treated as a tax, rather than a levy, so may offer tax relief for some non-doms. And non-doms whose earnings from overseas are low – that is below £2,000 – will be exempt from the charge.

To help families, child benefit for the first child will increase to £20 a week from April 2009 – a year earlier than planned. Also from April 2009, the child element of the Child Tax Credit will increase by £50 a year above inflation.

This, the government estimates, means that a family with two children, earning up to £28,000 a year, will be over £130 a year better off.

For pensioners, alongside the Winter Fuel Payment, there will be an additional one-off payment of £100 to over-80s households and £50 to over-60s households in 2008-09.

From April, the annual Individual Savings Accounts investment limit will increase to £7,200 with the amount that can be held in cash rising to £3,600.

To encourage the use of low emission cars, drivers are to get an incentive to go green.

The Chancellor announced a series of changes to Vehicle Excise Duty (VED). From 2009, VED will be restructured so that people gain financially by choosing the greenest cars. Specifically, there will be six new VED bands from 2009-10, including a new top band for most polluting cars that emit more than 255g CO2/km. The standard rate, in 2009-10, for all new and existing cars that emit 150g of CO2/km or less will reduce, while the rate on the most polluting cars will increase to £425.

From April 2010, for cars that emit less than the proposed 130 grams per kilometre European standard of carbon dioxide emissions there will be no car tax to pay at all in the first year. But a higher first year rate of £950 will be introduced on the most polluting cars.

To help people get onto the property ladder, the Chancellor announced that, from April, key workers and first time buyers will be able to borrow money from new-shared equity schemes. Until now the schemes were only available to those who could afford three quarters of the price of their new home. Now the scheme has been extended to help those able to afford half of the price of their new home. As from now, stamp duty on shared ownership homes will not be required until buyers own 80 per cent of the equity in their home.

With the basic rate of income tax set to fall from 22 per cent to 20 per cent, to help charities cope with a possible decline in the amount of tax they can claim on donations, the Chancellor introduced a transitional gift aid rate of 22 per cent. The transitional rate will apply from 2008-09 to 2010-11, providing charities with an estimated additional Gift Aid worth around £300 million over three years.

To help make good the likely shortfall in government income, Mr Darling has increased duty on alcohol by 6 per cent above the rate of inflation, with increases of 2 per cent above inflation slated for each of the next four years.

Specifically, the current increase will see beer rising in cost by 4p a pint, cider by 3p a litre, wine by 14p a bottle and spirits by 55p a bottle from midnight on Sunday 16 March.

The duty on tobacco is to rise, adding 11 pence to the price of a packet of 20 cigarettes and 4 pence to the price of five cigars from 6pm on 12 March.