You are here:

Budget winners earn £35k

Created:
12 March 2008
Written by:
Moira O'Neill

Those earning about £35,000 a year will be the biggest winners after income tax and national insurance (NI) changes come into effect this April. However, a person earning £40,000 a year will gain very little, while someone earning less than £15,000 is likely to be worse off.

Advertising

Confirming changes to tax and NI first announced by Gordon Brown last year, Alistair Darling said that from April 2008, the 10 per cent starting rate of income tax will be scrapped, the basic rate of income tax will be reduced by 2p to give a new rate of 20 per cent and the ceiling for paying the standard 11 per cent rate of NI contributions will rise sharply, by £3,900 over and above the normal inflation-linked increase. That means that the main NI rate will apply to income up to £40,040 a year (this year the threshold is £34,840).

People earning about £35,000 a year will be around £32 per month better off, because they will save income tax yet pay no more NI. However, the sharp rise in the ceiling for the 11 per cent NI contribution rate means that those earning about £40,000 a year will gain very little from the tax cut, as they will now pay the higher rate of NI on more of their income.

Those earning £15,000 a year will pay more in tax by having more of their income taxed at 20 per cent, rather than 10 per cent. For example, someone earning £8,000 will be around £12 per month worse off.

The knock-on effect of these changes is that net payments to pensions, including self-invested personal pensions, will change from April 2008. After April, basic-rate taxpayers will need to pay an extra £20 on a £1,000 pension contribution, because the government tax relief will reduce from £220 to £200.

Higher-rate taxpayers will have to claim back 20 per cent tax relief via their annual tax return, rather than 18 per cent at present.

Andrew Tully, senior policy manager at Standard Life says: "By paying additional pension contributions before April people can get more money into their pension pot, as the Government will add a greater amount of tax relief. People can also reduce the tax burden imposed by the increase to National Insurance by using salary sacrifice arrangements to pay their pension contributions."

MORE BUDGET ANALYSIS...

For more analysis of the 2008 Budget, see our Budget Summary.

  • Back to top

GLOBAL BANKING CRISIS

Get the latest news here!

Promotional Feature

The world's oldest pets

We all want our pets to live long and happy lives. One of the easiest ways to help your four-legged friend get over life's many hurdles is to get them covered with pet insurance.

by Sainsbury's

Promotional Feature

Turkey Resort Round-up – Beyond Istanbul

Holidays to Turkey tend to focus on the country's magnificent coastline. Dotted with coves and lined with sandy beaches, Turkey is a sun-worshipper's paradise.

by TUI