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Personal
Tax
Rates
The income tax rates and bands for 2004/05
were not announced in the Pre-Budget Report. Details of these are normally made
available in the main spring Budget.
Allowances
The Chancellor confirmed the level of income
tax allowances for 2004/05. The personal allowance for those aged under 65 is
increased in line with inflation for 2004/05. Personal allowances for those
aged 65 and over will be increased in line with earnings and are summarised
below together with the other proposed allowances announced in the Pre-Budget
Report.
|
2004/05
£ |
2003/04
£ |
| Personal allowance |
|
|
| -
under 65 |
4,745 |
4,615 |
| -
65 – 74** |
6,830 |
6,610 |
| -
75 and over** |
6,950 |
6,720 |
|
Married couple’s allowance* |
|
|
| -
aged less than 75 and born before 6.4.35** |
5,725 |
5,565 |
| -
75 and over** |
5,795 |
5,635 |
| -
minimum amount |
2,210 |
2,150 |
Age
allowance income limit**
|
18,900 |
18,300 |
| Blind person’s allowance |
1,560 |
1,510 |
Notes
*Qualifies for relief at 10%
**Reduce age
allowance by £1 for every £2 of excess income over the income
limit
|
Pensions
Proposals for radical simplification of the
taxation of pensions were announced in December 2002 and initially intended to
take effect from April 2004. Following representations from the pensions
industry, the start date has been delayed until April 2005. The plan is to
scrap the existing eight tax regimes for pensions and replace them with a
single set of rules that would include:
- a single, lifetime limit of £1.4
million on the amount of pension saving that can benefit from tax relief
- any excess over £1.4 million to be
subject to a 25% ‘recovery’ charge
- funds in excess of the lifetime limit can
be withdrawn entirely as a lump sum subject to a higher recovery charge of 55%
- an annual contribution limit of
£200,000, with any excess contributions being subject to an income tax
charge through the self assessment system
- both figures will be indexed annually in
line with the RPI
- an increase in the age at which pensions
can be drawn to 55 by 2010.
It was hoped that the government would
announce a higher lifetime limit than £1.4 million. However they have
suggested a reduction in the proposed rate of the recovery charge from 33 1/3%
to 25%. Also, where an individual has pension rights valued in excess of
£1.4 million when the new rules are introduced, this value will be
protected together with any growth up to the RPI.
Child Tax Credit
The Child Tax Credit was introduced on 6 April
2003 to replace the old Children’s Tax Credit. The credit which is means
tested is potentially available to families who have responsibility for one or
more children. The credit is paid direct to the main carer. There are several
elements to the credit but broadly the maximum is an annual amount for 2004/05
of £1,625 per child together with a family element (one per family) of
£545 per annum.
The new credit has been criticised for its
complexity and is nearing the end of its first, rather fraught, year of
operation. However it is estimated to apply to nine out of ten families. Some
credit is likely to be payable for 2004/05 if a family’s income is less
than £58,175 a year, or £66,350 if there is a child under one year
old.
Working Tax Credit
The Working Tax Credit (WTC) was introduced in
April 2003 to reward the work of people on low incomes whether or not they have
children. It also provides working families with assistance to meet the costs
of childcare. The annual income threshold for 2004/05 remains at £5,060
(£97 per week) with a reduction of 37p for every extra £1 of
income. The basic maximum benefit is increased for 2004/05 to £1,570.
Childcare costs continue to form part of the WTC calculation at a rate of
70% of eligible costs to a maximum of £135 per week (£200 if two or
more children). These figures remain for 2004/05 at their 2003/04 levels. This
element is paid with Child Tax Credit.
Child Trust Fund
The Child Trust Fund (CTF) was first announced
by the Chancellor in his April 2003 Budget speech. He referred to it briefly in
his Pre-Budget Report. Further details were announced recently and are
summarised below. The CTF is being introduced for all children born from
September 2002. The government will provide an initial award of £250
(£500 for children from low-income families who also qualify for full
Child Tax Credit). A child will be eligible for a CTF account if Child Benefit
has been awarded for them and they are living in the UK. If these conditions
are met the award is made automatically with no need to make a separate
application.
Vouchers will be sent to the Child Benefit claimant and
should be used to open a CTF account when they become available in 2005.
A further payment will be made to every child for its seventh birthday,
again with a higher payment to children from families on lower incomes. The
amounts of both these payments will be decided at a later date.
Family
and friends of the child can make additional contributions of up to
£1,200 a year between them.
The income and gains in the CTF will
be tax-free and may be accessed by the child at age 18.
There will be
different sorts of accounts available, including cash deposit accounts, unit
trusts, and life products.
Many new parents will welcome the
introduction of a tax-free savings mechanism for their children. However those
with children born before September 2002 lose out.
Film tax relief
Film tax relief was introduced to encourage
investment in UK films. It works on the basis that investors enjoy immediate
tax relief on their investment with the expectation that they will pay tax on
income received from the film in the future. Some schemes have been marketed
which the government believes allow investors to convert the initial tax
deferral into a permanent tax advantage. Consequently, with immediate effect,
where an investor exits from such a scheme there will be a tax charge to remove
the advantage.
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