Webchat: Your Budget questions

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A full transcript of the session is published below.

If you'd like to send us a general tax question for when we next cover the subject, please click here.

Q18) I fly a light aircraft in the UK (pleasure flying only) and wondered if there had been a change in the tax on aviation fuel (AVGAS 100LL). I know various changes were being talked about but wondered if anything new popped up in the small print.

From 1 November 2008 the UK's ability to use reduced duty rates for Avtur for pleasure flying expires, so the rate will have to rise. A new definition of Avgas will be introduced. I'm not an expert in this area - have a look at HMRC Budget Notice BN87 (see their website) for details which you may understand better than I!

Q17) Bank/Building society interest: Please can you confirm that the first �2,320 interest earned is taxable at 10%. Please can you define that if the figure is above the �2,320 then the whole interest will be taxed at lower threshold of 20%, subject to being within the 0 to �36,000 threshold?

Ronny Jones.

John says: The continuing 10% rate on savings only seems to be applying where your total income is a maximum of �2,320 above your personal allowance. So I'm afraid it doesn't give a 'first �2320 at 10%' result.

Q16) Suppose one's total earnings are �2,000 above the tax-free allowance and �4,000 consists of dividends. Could the �400, (10% of �4,000), that was withheld be set against the �400, (20% of �2,000), that is owed? Or would it be only 10% of �2,000 and would one have to pay a further �200?

David Balfour.

John says: I think you are talking about a total income (not just earnings) of �2,000 above your tax-free allowance. Assuming that's the case, if �4,000 of that is dividends, then that counts as the top bit of your income, meaning that any tax you are due to pay will be covered by the tax credit on your dividends.

Q15) My husband and I are now retired but have non domicile status here in the UK. We came from Australia 10 years ago and have a home there and one here in the UK. Are we going to be charged �30,000 each for the priviledge of staying in the UK.

Heather.

John says: If you are non-domiciled, then you have a choice as to whether you want to use the remittance basis - ie to only pay tax on non-UK income iand gains if you bring them in here. If you do want to usethe remittance basis, then

- you lose the personal allowance and CGT annual exemption that you would normally be entitled to

- after 7 years of residence, you would also have to pay the �30,000 additional tax

Clearly it's up to you whether you elect for this new system or just, instead, pay UK tax on all your worldwide income. However, if your overseas income is under �2,000, you are not caught by the new rules and you can continue to use the remitatnce basis (and potentailly not pay UK tax on that modest amount).

I should also say that you and your wife will have to sort out your individual positions on this - and potentially each year.

Q14) My wife and I are both retired, I am 62 and my better half not yet 60, I pay something like �1,400 income tax/per year and my wife uses about half of her personal allowance. Does the income tax system allow me to offset my tax liabilities against her unused personal allowance.

David Barnett.

John says: Sadly no - this has been a regular campaigning issue and there is some sign that the Opposition parties are interested in the idea but as yet it's not possible. All you can do is to make sure your wife owns any income -producing assets/bank accounts so she gets the investment income to mop up as much of her personal allowance as possible.

Q13) I am 61 and currently living on interest on my savings not working but not yet taking my pension,can i claim the heating allowance.

Trevor Williams.

John says: The winter fuel payment is available to 'households with someone over 60' so I think you will be eligible, including the one-off extra �50 announced yesterday.

Q12) I work in the IT industry side-by-side with many freelance/contract staff. The majority of these seem to benefit from an extremely favourable tax system whereby, although earning six figure salaries, they only pay income tax on approximately �20k income as the majority of their incomes seem to be channelled through EBTs and returned to them as loans, never to be repaid.

I understand that a number of these also claim tax credits as they are on such low incomes! The EBT route seems to be well known and established but must cost the country many millions annually in tax avoidance. To my knowledge this system seems to have been in place for at least eight years.

Is there anything in this year's budget that will address this, or indeed, do any plans exist to curb this blatant unfairness?

Chris Johnson.

John says: Nothing in the Budget as such but you may wish to know that HMRC is well aware of the use of EBTs and has been challenging their use in the sort of way you describe for some time - with some success!

Q11) Aside from the new additional tax which motorists will have to pay when purchasing 4 X 4 vehicles in the future, the Chancellor was not specific about the amount of tax that will apply in the new Road Tax Bands applicable next year.

Can you advise where I can find a comparative table of existing and new tax bands?

Geoff Taylor

John says: It's in the HMRC Press Notice 02 which you should be able to track down on their website. Most other duty bands have gone up by �5.

Q10) I seem to recall John talking about the 10% starting rate of income tax some months ago, and I think he said that the 10% starting rate would still apply to savings.

As I've not heard anything about this during the last two days is it possible to confirm this?

Cyril W Jarman.

John says: The 10% rate will still apply to savings income. However, the catch is that the savings income is treated as your 'top slice' of income and you'll only getthe benefit of the 10% savings rate if your overall income is only �2320 above your personal allowance.

There is an article explaining this on the WL website that you might like to look at.

Q9) I feel you are one person where i can get straight advice - been watching you on Working Lunch. CGT 10% stops after 5th april and 18% starts

Not to risk of tax avoidance - I am self employed own freehold building and run business from that premises my wife has very little income - I want to sell my building to her and pay her rent, can I do this? Do I have to or can I pay 10% tax on profit so my wife has new starting point of building at current value and when she sells she will be paying 18% tax (unless the government changes tax system)? Or can I giive as a gift and pay her rent - when wife sells building in future will she pay tax on total profit i.e. actual cost and sale value or what?

Suresh.

John says: In principle you can give your wife the building (no CGT on inter-spouse transfers and if done before 6 April will 'fix' any indexation allowance that has been accrued).

She then owns it and could rent it to your business though there would have to be proper agreements in place and she would be liable to tax on the rent.

It is quite possible that HMRC would seek to challenge the changes as something of a sham.

Q8) Re non dom taxation, would you please lt me know if the �30,000 yearly levy is payable if capital is brought into the UK?

Claire Slater.

John says: In principle, yes - the �30k fee is all about continuing to be taxed on a remittance basis, which applies to both income and capital.

Q7) I understand there will be an increase in corporation tax for small businesses from 20 to 21% from April 2008, and that this applies to all businesses with profits under �300,000. This must be the majority of start up businesses, and many that are still growing after several years trading.

I am suprised about the lack of comment or criticism, have I understood this change correctly?

Trevor Williams.

John says: This is the continuation of announcements from last year's Budget. Perhaps unsurprisingly, it wasn't mentioned yesterday though it is in the press releases. The rate is scheduled to go up further to 22% in April 2009.

Q6) I am 61 and currently living on interest on my savings not working but not yet taking my pension, can i claim the heating allowance?

Trevor Williams.

John says: The winter fuel payment is available to 'households with someone over 60' so I think you will be eligible, including the one-off extra �50 announced on the Budget day.

Q5) My husband receives investment income from overseas. He also has property and business overseas. We are british citizens living in uk. There was a suggestion a few weeks back that he will have to pay �30,000 on remittances or get taxed on the whole of his income overseas.

What are the budget implications on the above?

Dru Ratnayaka.

John says: The �30,000 charge relates to someone who is 'non domiciled', if they want to keep using the 'remittance basis'.

If you are UK resident and domiciled you are already liable to pay tax on your worldwide income and gains on an arising basis.

Q4) Has anything changed with regarding CGT inter-spousal transfers?

Val.

John says: No, no changes announced to the existing rules - so for example you can transfer now and 'fix' any indexation allowance to date.

Q3) I am interesting in manufacturing my own biofuels for personal use only, as I own two diesel cars and a motor boat. With red diesel being abolished later this year I felt this could provide me with a saving.

Currently you can produce 2,500 litres for personal use tax free, whether that is per person or per production unit depends on who you are speaking to at HMRC. From one of the companies I have been talking to they suggested that the budget may increase this tax free allowance to 5,000 litres.

Kate Barnard.

John says: This isn't clear. The current duty differential for biofuels will cease from 2010 but apart from that I didn't see any announcements on biofuels.

Red diesel will still be permitted for pleasure boating, incidentally.

Q2) I heard it mentioned that there would be a slight improvement for those who receive overseas dividend. How?

Out of interest, how should I treat my Spanish Santander shares for UK tax purposes (held in a nominee account)?

Tony.

John says: Someone getting an overseas dividend on small (less than 10% of the shares) overseas shareholding will get the same 10% non-repayable tax credit as people getting a UK dividend receive. This means the tax rate on such dividends would be nil for a basic rate taxpayer, and an effective 25% for a higher rate payer. This starts in 2008/09 and is extended in 2009/10 to bigger shareholdings. If tax has been deducted (witholding tax) from the dividend there will be further credits to the UK liaibility.

Q1) I have a Land Rover Discovery. I've had it for six years. Does the �950 road fund tax apply to me in November of this year, or does it only apply to new car purchases?

I only do about 2,000 miles per year, therefore the amount of noxious gases that I churn out annually, is probably a lot less than a so called 'green car' doing the average annual mileage of 12,000 miles per year. Why is the Chancellor picking on me?

Will Richards.

John says: What was announced was just a rate in the first year of a car's life of �950 VED for 'the most polluting cars' which we assume will be the Band G(226 and above gm/km of CO2), to apply from 2010/11.

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