Personal Taxation

Personal Tax Allowances

Personal allowances for those aged under 65 have been frozen at the 2002/03 levels. The allowances for older taxpayers have been increased above inflation, but those allowances are scaled back to the amounts applicable to younger people when total income exceeds £18,300 (£17,900 for 2002/03).

Capital Gains Tax

The annual exemption has been increased from £7,700 to £7,900 and to £3,950 for most trusts. The self assessment reporting requirements for CGT are simplified from the tax year 2003/04. Where gains have been made, but no tax liability arises, there will be fewer circumstances where the CGT pages have to be completed.

One loophole that was tipped to be closed has, in fact, been widened. Landlords renting commercial property to limited companies were entitled to business asset taper relief on the sale of the premises.

However if the tenant was an unincorporated business asset taper relief was not available, leading many landlords to ask their tenants to incorporate. The renting of property is usually considered to be investment, not a business and taxed accordingly and this was predicted to be closed.

However business asset taper relief is now available whether the tenant is a company or not.

Pensions

For 2003/04 the earnings cap for occupational, stakeholder and personal pension schemes is increased from £97,200 to £99,000.

Inheritance Tax

The threshold of total estate value at which inheritance tax becomes payable is increased from £250,000 to £255,000. It is estimated that in 2003/04 5% of all estates will be liable for Inheritance Tax. There were no other significant announcements on IHT.

Income Tax Rates

The chancellor has once again kept income tax rates unchanged.

Child Trust Fund

The Chancellor has announced a major savings boost for future generations with the creation of Child Trust Funds.  The fund will provide an endowment for all children born from September 2002, with every child receiving at least £250, rising to £500 for children from low income families - around one third of all families.

Parents, family members, friends and even the children themselves can make additional contributions up to an annual limit of £1,000.  Access to the assets, including any additional contributions, will only be permissible when the child reaches 18.

Full product proposals will be available in Summer 2003.

New Money

From 6 April 2003 individuals who received the Working Families Tax Credit (WFTC) or the Disabled Persons Tax Credit (DPTC) should qualify to receive the Working Tax Credit, and the Child Tax Credit if they support a child under 19 who is still in full-time education.

Child or Children

Those individuals who claimed the Children’s Tax Credit on their 2001/02 tax return forms may also be eligible to receive the Child Tax Credit from 6 April if their total family income is less than approximately £58,000.

The Children’s Tax Credit is a tax allowance that reduces the amount of tax an individual pays and is calculated in arrears whereas the Child Tax Credit is a cash payment to the main carer in the family and must be claimed in advance.


The Claim

To claim the Child Tax Credit or Working Tax Credit the family must complete a 12 page application form which must be signed by both partners. The claim is based on the combined income of the couple, not the income of the higher earner as for the Children’s Tax Credit.

The claim should be submitted to the Tax Credit Office of the Inland Revenue as soon as possible after the family becomes eligible as the claim cannot be back-dated more than three months. To receive the Child Tax Credit from 6 April 2003 the tax credit claim must be submitted by 6 July 2003
 

Investment Bonds

Insurance company capital investment bonds will be less attractive in future. 40% taxpayers previously had an additional liability of 18% on any gains. This is now increased to 30%.

Savings

The tax free status of ISAs are guaranteed until 5 April 2009. All UK residents aged 18 and above may hold one Maxi ISA, or one of each of the different types of Mini ISA, in one tax year. Those aged 16 or 17 can hold a mini cash ISA.