Scrap basic rate tax on savings interest for over 65s. Banks and building societies deduct tax at 20% from every penny earned in interest on savings deposited with them. Non-taxpayers have to claim it back or register to get interest paid without tax deducted. Many don’t. As a result there is £200 million sitting in Treasury coffers that shouldn’t be there, taken off non-taxpayers. Scrapping tax at the basic rate on savings interest for those over 65 would solve this problem and give a big boost to the incomes of the over 65s. The small minority of fortunate pensioners on higher rate tax would pay the extra 20%, collected as it is now through self-assessment.
Equalise tax allowances for under and over 75s. The age allowance for those 65-74 is £9,490 and for those aged 75 it is £9,640. This £150 difference is insignificant now the allowance is so high. It would simplify things to scrap the lower rate and give the same allowance to all over 65s.
Stop means-testing over 65s tax allowances. Chancellors love talking about the extra tax allowance for those over 65. But they never mention it is means-tested. The tax allowance for over 65s is around £3000 higher than for people under that age which is worth £600 a year off their annual tax. But the extra allowance is phased out once income reaches £22,900. It is reduced by £1 for each £2 of income above that amount and disappears completely at an income of £28,930 for those aged 65-74 and at £29,230 for those aged 75 or more. People with an income in that range pay a marginal tax rate on each extra £1 of 30%. Scrapping this means-test would end a major source of annoyance and complexity and stop a very high tax rate among over 65s.
February 2010