Personal measures
Income tax
Following the compensation arrangements arising from the abolition of the 10% rate band, the Government will make permanent the £600 increase in the personal allowance with a further increase of £130 above indexation, meaning basic rate taxpayers will pay £145 less tax per year from 2009/10.
The basic rate limit for 2009/10 will be increased by £800 above indexation. The Chancellor announced the tax thresholds and personal allowances for 2009/10 as follows:
| Income Tax | 2008/09 | 2009/10 |
|---|---|---|
| Starting rate band * | £2,320 | £2,440 |
| Tax rate | 10% | 10% |
| Basic rate band | £34,800 | £37,400 |
| Tax rate | 20% | 20% |
| Basic rate for dividend income | 10% | 10% |
| Higher rate - income over | £34,800 | £37,400 |
| Tax rate | 40% | 40% |
| Higher rate for dividend income | 32.5% | 32.5% |
| * 10% rate for savings income up to the starting rate limit within the basic rate band. Where non-savings income exceeds the limit the starting rate for savings does not apply. | ||
| Personal allowances | 2008/09 | 2009/10 |
| (age at the end of the tax year) | ||
| Under 65 | £6,035 | £6,475 |
| 65 - 74 | £9,030 | £9,490 |
| 75 and over | £9,180 | £9,640 |
| Higher allowances scaled back if income exceeds | £21,800 | £22,900 |
From 2010/11, those with gross income in excess of £100,000 will lose some or all of their personal allowances. The basic allowance will be scaled back in two stages:
- where gross income is between £100,000 and £140,000, to a minimum of 50%, and
- where gross income exceeds £140,000, to a minimum of £0.
The scaling will be achieved by reducing the allowance by £1 for every £2 by which gross income exceeds the £100,000 and £140,000 thresholds.
Also announced for 2011/12 are new higher rates of tax:
- for those with higher incomes, a tax rate of 45% will apply to savings and non-savings income over £150,000
- a new 37.5% rate of tax will apply to taxable dividend income above £150,000
- the rate of tax for trusts will be increased to 45%, with trust dividend income liable at 37.5%.
Trust tax rates
The Chancellor's proposal to introduce a new higher rate band of 45% from April 2011 will have a dramatic impact on discretionary and accumulation trusts. Tax rates for such trusts will increase to 37.5% for dividend income and 45% for other income. Those trusts that distribute more income than can be franked by the trustees' tax pool will see an increase in the notorious “tax pool charge”.
There may be opportunities for some trusts to avoid the higher rates where entitlement to income can be granted to beneficiaries. This has been made easier following the Finance Act 2006 changes to the inheritance tax treatment of trusts.
National Insurance Contributions
For 2009/10 the Upper Earnings Limit (UEL) for primary Class 1 National Insurance Contributions (NICs) will be aligned with the level at which people start to pay higher rate income tax. The UEL will therefore be £43,875 (2008/09 £40,040). For higher rate earners this will cost £32.89 per month in extra contibutions.
Class 2 NICs will increase by 10p to £2.40 per week and Class 3 voluntary contributions will rise by £3.95 to £12.05 per week. The Government is to reduce the burden on the self-employed by aligning the payment dates of Class 2 NICs with those for Self Assessment liabilities. This will reduce the number of bills issued. There will also be improved information to contributors.
The Class 1 and Class 4 rates of contribution remain unchanged until April 2011.
The Chancellor announced an increase of 0.5% to the main NIC rates from 2011/12:
- the Class 1 primary (employee) rate will increase to 11.5% on earnings between the primary and upper thresholds and to 1.5% thereafter
- the Class 1 secondary (employer) rate will increase to 13.3% on earnings over the primary threshold
- Class 1A and Class 1B NICs will also increase to 13.3%
- Class 4 NICs will increase to 8.5% (1.5% above the upper limit).
Pension savings
The limits on annual and lifetime investment have risen each year since 2006/07 and will continue to do so until 2010/11. The Chancellor announced that the limits will stay the same for the following five years at £255,000 and £1.8 million.
Child benefit
The Chancellor announced that the increase in child benefit rates due in April 2009 will be brought forward to 5 January 2009. The weekly rate for the first child will increase to £20, with the rate for other children increasing to £13.20 per week.
Child tax credit
Bringing forward promised increases in CTC, the Chancellor announced that the child element will increase to £2,235 from April 2009, while the disabled child element will increase at the same time to £2,670.
State Pension
The full State Pension will rise to £95.25 per week from April 2009. In addition the Government will make a payment of £60 to pensioners “in the new year”, as a means of accelerating the increase.
The standard minimum income guarantee in Pension Credit will rise by £5.95 to £130 per week for single pensioners and by £9.10 to £198.45 a week for pensioner couples.
Saving Gateway scheme
A new Government supported saving scheme, the Saving Gateway, is to be rolled out nationally in 2010, in a bid to encourage up to eight million low income earners to save money.
Under the scheme, the Government will contribute 50p for every £1 that is saved. A maximum payment of £300 will be made once an account holder has been saving for two years, and the contribution will only be applied for those months in which no withdrawals have been made.
The Saving Gateway will be available through a range of banks, building societies, credit unions, and the Post Office.
Mortgages
The Government has said it is committed to supporting households, through:
- increasing the generosity of the Support for Mortgage Interest scheme
- extending the Mortgage Rescue scheme to cover second charge lending
- obtaining a commitment from major lenders not to initiate repossession action until at least three months after an owner occupier goes into arrears
- better access to free and impartial debt advice.
