PERSONAL TAX
Rates
The income tax rates and bands for 2006/07 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 2006/07. 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.
|
2006/07
£ |
2005/06
£ |
| Personal
allowance |
| - under 65 |
5,035
|
4,895 |
| - 65 – 74** |
7,280
|
7,090 |
| - 75 and over** |
7,420
|
7,220 |
Married couple’s allowance* |
| - aged less than 75 and born before
6.4.35** |
6,065 |
5,905 |
| - 75 and over** |
6,135
|
5,975 |
| - minimum amount |
2,350
|
2,280 |
| Age
allowance income limit** |
20,100
|
19,500 |
| Blind
person’s allowance |
1,660
|
1,610 |
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 2006/07
of £1,765 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 2006/07 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
2006/07 is £5,220 (the same as 2005/06) with a reduction of 37p for every
extra £1 of income. The basic maximum benefit is increased for 2006/07 to
£1,665.
Childcare costs continue to form part of the WTC
calculation at an increased rate of 80% of eligible costs up to a maximum of
£175 per week (£300 if two or more children). The rate was
previously 70%. This element is paid with Child Tax Credit.
Increases in income within a set limit, between one tax year and the next, do
not reduce a previous entitlement to tax credits. The limit for this
rises from £2,500 to £25,000 from April 2006. This should
ensure that almost all families with increasing incomes will not have their tax
credit entitlement reduced in the first year of the increase.
To
provide greater certainty for claimants, from November 2006 the Revenue will
apply automatic limits on recovery of excess amounts paid where awards are
adjusted in the year following a reported change.
From April 2007, the
time allowed to report a change that reduces tax credit entitlement will be
decreased from three months to one month, shortening the time when people are
potentially being paid too much.
From November 2006 it will be
mandatory to report more changes in circumstances than at present.
From 2006 the deadline for the return of end-of-year information will be
brought forward from the end of September to the end of August.
To
improve compliance in the operation of tax credits, the Revenue will more than
double the number of prepayment checks carried out on new claims and introduce
new training and procedures so that staff can recognise potential fraud.
Child Trust Fund
The Child Trust Fund (CTF) became operational in April
2005 for all children born from September 2002. The government provides an
initial award of £250 (£500 for children from low-income families
who also qualify for full Child Tax Credit). A child is 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 are sent to the Child Benefit
claimant and should then be used to open a CTF account.
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 government is
consulting on the eligibility and timing of the further payment and is
proposing it should also be set at £250 with children from low-income
families receiving £500.
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.
Pensioners
The Chancellor has announced various increases in
respect of benefits for pensioners:
- the basic state pension will rise to £84.25
for single pensioners and £134.75 for couples from April 2006
- the guarantee element of Pension Credit will
increase to £114.05 for single pensioners and £174.05 for couples
from April 2006
- the government will extend winter fuel payments at
the level of £200 for households with someone aged 60 or over, rising to
£300 for households with someone aged 80 or over, for the duration of
this parliament.
ISAs
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 2005/06. As previously announced, the government will
extend the existing limits until at least April 2010.
Residence and domicile
The government is continuing to review the residence
and domicile rules as they affect the taxation of individuals and is
considering various aspects of this issue.
Shari’a compliant financial products
The government introduced tax legislation in 2005 for
individuals and businesses wishing to have access to financial products that
comply with Shari’a Law. The government is consulting on how to encourage
further innovation and ensure that tax does not create an impediment to the
development of new products in this area.
Unclaimed assets
The government proposes that unclaimed assets in the
banking system should be reinvested in society while they remain
unclaimed. Where the owners can be traced they can be reunited with their
assets.
The government has agreed that any unclaimed assets should
include accounts where there has been no customer activity for a period of 15
years. The money will be reinvested in the community, particularly in
deprived communities, with a focus on youth services and financial education.
Venture Capital Trusts
In 2004 the government announced a temporary doubling
of the rate of income tax relief for investments in Venture Capital Trusts
(VCTs) to 40%. The future level of this relief will be announced in
Budget 2006.
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