BUDGET – 2008/2009

CHANGES THAT MAY AFFECT YOUR FINANCIAL PLANNING
ISAs
There is now only one type of ISA Account. Personal Equity Plans (PEPs) are now also known as ISAs and the name PEP is now obsolete.

For 2008/2009 the maximum investment limit is £7,200. Up to £3,600 can be invested in the cash component with the balance of £3.600 in stocks and shares component. Transfers from the cash component to the Stocks and Shares component are permitted but not vice versa. The tax advantages, wide investment choice and flexibility of ISAs make them very suitable for building up capital.

The return on cash deposits held in ISAs are generally higher than from other short term deposits. Accumulating tax free interest can therefore be an attractive option for generating growth in the value of your investment, but ISA interest rates are usually variable. In the longer term, an investment in the stocks and shares component has greater potential for capital growth, although this cannot be guaranteed.

Onshore Bonds
The changes in income tax and capital gains tax has affected Onshore Bonds. Onshore Bonds had better tax advantages than Unit Trusts/OEIC accounts. Due to the changes in income tax and capital gains tax it now means that Unit Trusts/OEICs provide a tax saving and may be a more suitable investment for some individuals, hence an investment review is recommended in order to determine if you would benefit. Onshore Bonds do continue to offer benefits not offered by Unit Trusts/OEICs such as trust planning and income benefits for higher rate tax payers.

Due to reduction in charges, a closer look and consideration should be given to Offshore Bonds especially as they provide access to Deposit Accounts with favourable interest rates that grow virtually tax free with the investment restrictions of ISAs.

Income Protection
Due to the changes being made to Incapacity Benefits it is important to review income protection. The details are detailed below. Should your income be affected due to loss of job or due to poor health, this could mean that you begin to erode your savings that were to be used for leisure/luxuries and may also mean that you will not be able to contribute to your pension affecting your income in years to come. If you have worked hard to build these securities, don’t lose it due to lack of protection. The cost of protection should be considered with any loan or mortgage established, without it you could lose all.

Incapacity Benefit changes
From 27th October 2008 the Government have introduced a new system for Long Term Incapacity. Incapacity Benefit has now been replaced by Employment & Support Allowance [ESA]. The change reduces the Statutory Sick pay period from 28 weeks down to 13. Beyond this point an individual has to apply for for ESA. They will be medically assessed and are required to score at least 15 points before being accepted for further benefit payments. The estimate is that only 50% of applicants will qualify for further benefit payment. 80% of that initial 50% may then qualify for Work Related Activity payment and will be re-assessed every 2 months. It is estimated that the other 20% may qualify for the Support Group allowance which will be higher than the work related with not further assessment requirement. The Government’s aim is to reduce Long Term sick benefits from 2.7 million people down to 1.7 million by 2015 with the final target being reduced down to 700,000.

Pension Planning
If you are contributing to a pension plan, you may now be aware that the level of tax relief has reduced. Due to the reduction of the basic rate of tax has meant that there has also been a reduction in the tax relief your contributions receive. In turn this means that less money is being invested into your pension plan and may affect your overall income at retirement. This has occurred at a time when the market is very low when regular contributions may purchase funds at historically low prices. With less invested means lower overall growth. It is worth obtaining a pension target report in order to review your investment.

Tax changes

Income Tax personal and age-related allowances

Additional higher rate of Income Tax
A new additional higher rate of Income Tax of 45 per cent will be introduced for those with incomes above £150,000 from April 2011.

VAT
The Value Added Tax (VAT) rate will be temporarily reduced to 15 per cent from 1 December 2008 until 31 December 2009.

Motoring taxes
Following the fall in pump prices by over 20 pence per litre from their summer peaks, the postponed two pence per litre fuel increase will go ahead on 1 December 2008. Also, as announced in the Budget in March, main fuel duties will further increase by 1.84 pence per litre on 1 April 2009 and 0.5 pence per litre above indexation on 1 April 2010.

The Pre-Budget Report confirms the introduction of new Vehicle Excise Duty bands in 2009. But, to reduce pressures on motorists during the current economic downturn, there will be no significant rate changes until 2010, and no driver in any given band will pay over £30 more in that year.

Benefits and tax credits
To provide additional support for low- and middle-income taxpayers, the government will:
Bring forward April’s increase in Child Benefit to January. This is worth an additional £22 on average to families.
The commitment to increase the child element of the Child Tax Credit by £25 above indexation in April 2010 will
also be brought forward to April 2009.
All pensioners will be paid £60 in the New Year. This is the equivalent of bringing forward the April increase in
the Basic State Pension for a single pensioner to January.
The Prime Minister's announcement to legislate on the commitment to eradicate child poverty by 2020 will be
taken forward through a child poverty bill in 2009.
The government is committed to uprating the basic State Pension by RPI or 2.5 per cent, whichever is higher.
In April 2009 the level of a full State Pension will rise in line with prices to £95.25 a week.
An above-indexation increase in Pension Credit’s minimum income guarantee to £130 for single pensioners
and £198.45 for couples in 2009-10.