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Budget 2007 - Summary of the taxation provisions This summary has been prepared very rapidly and is for general information only. The proposals are in any event subject to amendment before the Finance Act is passed. You are recommended to seek competent professional advice before taking any action on the basis of the contents of this publication. Gordon Brown used what he made clear was his last Budget to announce major reforms to personal and business tax and to prepare for the next general election. He set out his main aims, which were to promote long-term investment in environmentally sustainable growth, encourage work, promote savings and help families. As always, he included several measures to curb tax avoidance. After leaving the basic rate of tax at 22% for ten years, the Chancellor announced a reduction to 20% from 2008/09. It will be accompanied by the removal of the starting rate for earned income and pensions, although the 10% rate remains for savings income and capital gains. The main rate of corporation tax will also drop by 2% from 2008/09, but the small companies' rate will increase in an effort to reduce the tax advantages of incorporation for small businesses. The Chancellor also announced a major shake-up of tax allowances for businesses' capital expenditure, including a new £50,000 annual investment allowance. Budget highlights The basic rate of income tax will be 20% from 2008/09. Above-inflation increases will be made to the age allowances each year until 2011. The higher rate tax threshold will be aligned with the national insurance upper earnings limit from 2009/10. The small companies' tax rate will be 20% from 1 April 2007, and will increase by 1% a year in the following two years. The main rate of corporation tax will be reduced to 28% from 1 April 2008. The 50% first year capital allowance for small businesses will be extended for another year. Writing-down allowances will be cut to 20% from 2008/09 and there will be a phased abolition of allowances for industrial and agricultural buildings. The rates of R&D allowances will increase. The ISA subscription limit goes up to £7,200 overall, with £3,600 for a cash ISA from 6 April 2008. Tax avoidance through managed service companies will be subject to new anti-avoidance rules.

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