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.

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.