Pre Budget Report 2008 - Personal Allowances

In accordance with previous practice the Chancellor, Alistair Darling in his Pre-Budget Report on 24th November 2008 announced the new personal tax allowances to be used from 6 April 2009 (see table below).

The main rates of income tax for 2009/10 will remain at 20% for basic rate taxpayers and 40% for higher rate taxpayers. The basic rate limit for 2009/10 will be increased from £34,800 to £37,400. The point at which people start to pay higher rate tax for 2009/10 will therefore be £43,875.

The Chancellor also announced the following measures in connection with higher rate earners.

From 2010/11 if an individual’s gross income is above the income limit of £100,000 the basic personal allowance will be reduced by £1 for every £2 above the income limit up to a maximum of one half of the allowance. At £140,000 the amount of their allowance will be further reduced by £1 for every £2 above the income limit up to a maximum of the full amount of the basic personal allowance. This will at certain levels lead to an effective marginal rate of tax of an incredible 60%.

If the above was not enough from April 2011 taxable income above £150,000 will be liable to income tax at 45%. Also from April 2011, the rate of income tax for trusts will increase to 45%.

However before this comes into operation a general election is due to take place and this move is speculated not to win any votes for labour from those falling in to this income bracket.

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