PERSONAL TAX
Rates
The income tax rates and bands for 2007/08 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 2007/08. The allowances will be increased in line with inflation
and are summarised below together with the other proposed allowances announced
in the Pre-Budget Report.
|
2007/08
£
|
2006/07
£
|
| Personal allowance |
|
|
|
- under 65 |
5,225 |
5,035 |
|
- 65 - 74** |
7,550 |
7,280 |
| - 75 and over** |
7,690 |
7,420 |
| Married couple’s
allowance* |
|
|
|
- aged less than 75 and born before
6.4.35** |
6,285 |
6,065 |
|
- 75 and over** |
6,365 |
6,135 |
|
- minimum amount |
2,440 |
2,350 |
| Age allowance income limit** |
20,900 |
20,100 |
|
Blind person’s allowance |
1,730 |
1,660 |
Notes
* Qualifies for relief at 10%
** Reduce age allowance by £1 for every £2 of excess income
over the income limit
Child Tax Credit
The Child Tax 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 2007/08
of £1,845 per child together with a family element (one per family) of
£545 per annum. The amount per child has been increased but the family
element has been frozen since the introduction of the credit.
Some
credit is likely to be payable for 2007/08 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 to reward
the work of people on a low income. It also provides working families with
assistance to meet the costs of childcare. The annual income threshold for
2007/08 is £5,220 (the same as 2006/07) with a reduction of 37p for every
extra £1 of income. The basic maximum benefit is increased for 2007/08 to
£1,730.
Childcare costs continue to form part of the WTC
calculation at rate of 80% of eligible costs up to a maximum of £175 per
week (£300 if two or more children). This element is paid with Child Tax
Credit.
Child benefit
The government will introduce from April 2009 a new
entitlement for all pregnant women to receive child benefit from the 29th week
of their pregnancy. This measure is being introduced in recognition of the
importance of a healthy diet during pregnancy. The additional entitlement will
be worth up to £200.
Pensioners
The Chancellor has announced various measures for
pensioners from April 2007:
- the basic state pension will rise to £87.30
- the Pensions Credit will be increased to
£119.05 for single pensioners and £181.70 for couples
- the Savings Credit will be increased to a maximum
of £19.05 for single pensioners and £25.26 for couples.
The government is also introducing free off-peak local
area bus travel, and committing to extend this to off-peak nationwide bus
travel from April 2008 for those over 60 and the disabled.
Individual Savings Accounts (ISA)
When ISAs were introduced in 1999 they were guaranteed
to run for ten years to 2009. Currently the overall annual investment limit is
£7,000 with a maximum of £3,000 in cash and this was guaranteed to
run until the end of 2009/10.
Over 16 million people - more than one
in three adults - now have an ISA.
The government are now making the
ISA a permanent feature of the savings landscape and intends to introduce a
number of reforms designed to simplify the ISA regime and increase its
flexibility for providers and savers.
- The overall annual investment limit will be at
least £7,000.
- The mini/maxi distinction within the ISA will be
removed. The government will continue to allow individuals to hold these
components with either the same or different providers.
- Individuals with funds saved in the cash component
of ISAs from previous years will be able to transfer those funds into the
stocks and shares component without affecting their annual investment limit.
- Personal Equity Plans will be brought within the
ISA wrapper.
- Child Trust Fund accounts will be able to rollover
into ISAs when they start to mature from 2020 onwards.
Saving Gateway
The government has piloted savings schemes which use a
system of matching – a government contribution for each pound saved. The
aim is to encourage saving among lower income households. Initial participant
feedback has been encouraging and the government intend to publish the final
evaluation of the scheme in spring 2007.
Pensions
The new taxation of pensions regime finally took
effect from 6 April 2006, referred to as ‘A’ day. There is now a
single set of tax rules for all registered pension schemes.
A number
of technical improvements have been announced which are designed to ensure
that:
- pension tax rules meet the original intentions of
the simplified regime
- tax reliefs for pensions are used to encourage
individuals to provide for their retirement income
- industry costs are reduced.
A number of anti-avoidance measures were introduced in
Finance Act 2006 and the government has considered that further provisions are
necessary.
Alternatively Secured Pensions (ASPs)
The pensions tax rules require an individual to secure
an income before they reach the age of 75. Most people will have an annuity or
scheme pension, but an ASP was provided as an alternative. ASPs were designed
for those who have a principled religious objection to annuitisation.
The government is therefore trying to restrict the use of ASPs to their
original limited purpose by:
- introducing a minimum income requirement of 65% of
the annual amount of a comparable annuity
- setting a higher maximum income withdrawal of 90%
of the annual amount of a comparable annuity
- imposing an unauthorised payments charge where ASP
funds remaining on the death of a member are transferred to pension funds of
other members in the scheme.
Finance Act 2006 introduced an inheritance tax charge
on left over ASP funds on the death of the scheme member and the government is
considering how this will work and interact correctly with the new unauthorised
payment provisions.
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