The Government is scrapping the extra tax free
income that people over 65 have been allowed since 1925. The surprise
announcement in the 2012 Budget has been dubbed a ‘granny tax’. Though in fact
more men than women will be penalised and, of course, it has nothing to do with
having grand-children.
Currently people aged 65 or more are allowed to
have more income before tax is due than younger people. This tax year, 2012/13,
everyone aged 65 to 74 – including all those who reach 65 by 5 April 2013 – will
be able to have an income up £10,500 before any tax is due. Those ten years
older – born 5 April 1938 or earlier can have £10,660 before tax is due.
The standard tax-free allowance for younger people
is £8,105 in 2012/13. So the higher allowances save up to £479 a year in tax for
those aged 65 to 74 and £511 for the older group.
The higher allowance is already phased out for
anyone with an income above £25,400 and once income reaches £30,190 (65-74) or
£30,510 (75+) the allowance is the same £8,105 that those under 65 get – £8,105.
Income in that band is effectively taxed at 30%.
But these rules will change from 6 April 2013.
No-one who reaches 65 on that date or later (so born 6 April 1948 or later) will
get this higher allowance at all. They will get the same allowance as younger
people. By 2013/14 that will have risen to £9,205 as part of the Coalition
Government commitment to raise it to £10,000. That may happen as soon as 2014/15
and almost certainly by 2015/16.
Anyone in this group with an income between £9,205
and more than £30,000 will therefore pay more tax when they reach 65. The actual
cash loss will be £259. Though if they got the age allowance and if it had risen
in line with inflation then the loss would be more. HMRC says £285 a year.
The 4.4 million who already get the age allowance
and were born before 6 April 1948 will keep it. But it will be frozen at its
2012/13 rates – it will never rise. And those born 6 April 1938 to 5 April 1948
will not get the higher over 75s allowance when they reach that age. That will
particularly affect those aged 74 this tax year who could expect a small tax cut
next year. They will now not get it.
The age allowance will remain fixed at £10,500 for
those born from 6 April 1938 to 5 April 1948 and at £10,660 for those born
before 6 April 1938.
They will be worse off than they would have been as
the allowances normally go up each year in line with inflation (the one
exception was 2010/11 when all tax allowances were frozen to help cut the
Government’s annual overspend).
Although the Chancellor told Parliament “no
pensioner will lose in cash terms” the papers issued by HM Revenue & Customs
show that 4.4 million over 65s will be “worse off compared to 2012/13”. Their
average loss will be £83 a year. And there are another 360,000 who reach age 65
who will lose on average £285. My figures are slightly different but the
principle is clear. It is also clear that this change will save the Government
money – more than £1 billion a year by 2015/16. Clearly that money has to come
form people over 65.
The personal allowance for younger people, by
contrast, will rise well above inflation. It will be £8,105 from April this year
and will rise by £1,100 to £9,205 from April 2013. The Coalition Government is
committed to raising it to £10,000. And at this rate that could well happen by
2014/15. This rise will save those under 65 £220 a year. But to help pay for it,
the level at which higher rate tax is paid will fall to £41,450 dragging another
300,000 people into the higher rate tax band. The gain for higher rate taxpayers
from the rise in the personal allowance will be only around £42.50 a year.
This rise will also help people over 65 who have an
income above the limit to get the age allowance. So the better off over 65s will
gain more than the middle band whose income is ££10,500 to about £30,000.
As the personal tax allowance rises it will close
the gap on the higher age allowances. And by 2016/17 or 2017/18 they will
disappear altogether.
Pension
The Chancellor also announced that he will be going
ahead with the new flat rate state pension of around £140 a week. Full details
will be published in the summer. He also promised – if that is the right word –
that there would be further rises in state pension age as life expectancy grows.
“There will be an automatic review of the state pension age to ensure it keeps
pace with increases in longevity.”
Child Benefit
Anyone with an income over £50,000 will pay extra
tax if they or their partner or spouse gets child benefit. The extra tax will be
on a sliding scale as income rises from £50,000 to £60,000 and at that level
will be as much as the child benefit received. An estimated 840,000 million
families will effectively lose all their child benefit and another 360,000 will
lose some of it. The biggest losers will be parents who are aged 51 to 65 whose
income is likely to be higher. The new tax will start on 7 January 2013. Anyone
earning more than £50,000 will be written to later this year and will have to
give more information to HMRC. An extra 500,000 will have to fill in a
self-assessment form.
Houses
A new rate of Stamp Duty Land Tax now applies to
homes sold for more than £2 million - it is 7% of the sale price which would
cost a minimum of £140,005. On a home sold for £4 million would be £280,000.
That could push down the price of these very expensive homes. This higher stamp
duty replaces the proposed 'mansion tax' on properties worth £2 million or more.
The Government will consult on charging an annual tax on property owned by what
it calls a 'non-natural person' such as a company or a trust rather than an
individual.