Money News March 2013

Tax giveaway
The Government is giving away £1 billion to people under 65 by raising the annual income they can have before they pay tax. It will increase from £8,105 to £9,440 a year from 6 April. That will save most taxpayers up to £267 a year – more than £5 a week – on the tax they pay. But the giveaway is not being extended to those born 5 April 1948 or earlier whose tax free allowances will not change. They will be frozen next year at their 2012/13 levels of £10,500 for people born 6 April 1938 to 5 April 1948 and at £10,660 for those born on 5 April 1938 or earlier. If their income is below that amount no income tax is due. These allowances will be frozen until the rising personal allowance for young people catches up in a few years’ time. People born 6 April 1947 to 5 April 1948 should ensure they get the higher allowance for the whole of 2012/13 even if their birthday was as late as 5 April 1948. Call HMRC if that applies to you 0845 300 0627 or 0135 535 9022 from a mobile.

These higher allowances are taken away gradually if taxable income exceeds £26,100. The higher allowances will not be given to people who reach 65 from 6 April 2013. They will continue to get the same tax allowance as younger people.

The higher tax rate of 40% will begin lower down the income scale from April. In 2012/13 it was charged on income above £42,475. In 2013/14 the threshold will be reduced to £41,450. That will bring 400,000 more people into higher rate tax. In future this level will increase by just 1% a year, bringing yet more people into the 40% net.

The value of the married couple’s allowance – given to those where at least one spouse or civil partner was born before 6 April 1935  - will rise in 2013/14 from £770.50 to £791.50. It is paid as a deduction off any tax due in the year. The blind person’s allowance will rise from £2,100 to £2,160.

The Chancellor has also announced that the long freeze of Inheritance Tax will end on 6 April 2015 when the £325,000 limit will rise by just £4,000 to £329,000. A widow or widower can normally get double that allowance if his or her deceased spouse or civil partner left them all their estate.

Further tax adjustments may be announced in the Budget on 20 March.

Simplifying savings
The limit for tax-free savings in a cash ISA (individual Savings Account) will rise from ££5,640 to £5,760 in 2013/14; the limit for an investment ISA will be double that. Junior ISAs and Child Trust Fund annual limits will rise from £3,600 to £3,720 in 2013/14.

The Government is being urged to raise the cash ISA limit further as part of a major tax simplification programme for people over 65. It suggests scrapping the complex 10p tax rate (which applies to savings interest up to £2790 in 2013/14 provided it is your only income above your personal allowance) and raise it to 20p. The Office of Tax Simplification (yes there really is one!) says the £50 million extra tax raised should be spent on increasing the cash ISA allowance, though it does not say how much that would be.

The OTS would also like to see the married couple’s allowance converted to a fixed deduction from a tax bill that was freely exchangeable between spouses or civil partners. And it recommends converting the blind person’s allowance into a cash grant for all blind people – not just the taxpayers who currently benefit from it. It also wants the DWP to issue a form every April showing how much taxable state pension and others benefits have been paid in the previous tax year. That would help people work out if they have been correctly taxed. The Government set up the OTS in July 2010. It may or may not accept these proposals.

More information: http://www.hm-treasury.gov.uk/9912.htm

Pension unlocking
By law you cannot get your hands on your pension until you reach at least 55. It is more than a year since the courts ruled any attempts to ‘unlock’ or release pensions before that age as illegal. But criminals still persist in trying to tempt people into doing so. For them it is tempting. You are promised up to half your fund in cash and they get their hefty fees – up to 20% of the fund. Normally they will also persuade you to put the rest of the fund into an offshore investment into those old faithfuls such as residential property in a place you have barely heard of or a ‘green’ investment like carbon trading or timber.

The people making these offers hide behind offshore company structures and seem to think they are immune from prosecution. But they are not. HMRC has recently set up a dedicated team to address the problem. And the penalties are not confined to the people peddling theses schemes. The individual releasing their fund would be guilty of what is called an ‘unauthorised payment’ for which the penalty can be up to 70% of the money transferred.

Even drawing your pension at 55 is not a good idea – the longer you wait the more it will be worth. But trying to get hold of it before that age is going to leave you a lot poorer and some wide boy a lot richer. Not really what you save up for! All together now ‘just say no’!

More information: http://www.fsa.gov.uk/pages/consumerinformation/product_news/pensions/pension_schemes.shtml

Home Responsibilities Protection
I was glad to see the back Home Responsibilities Protection in April 2010. It gave some help to women to earn a bigger pension for the years they got child benefit for a child under 16. But HRP was complex and mean and three years ago was replaced by a simple National Insurance credit for each week that child benefit was claimed for a child under 12. Every week of HRP earned before 2010 was replaced by a National Insurance credit up to a maximum of 22 years. Women who were entitled to HRP should check that it was correctly recorded and converted. It could mean a bigger state pension.

More information https://www.gov.uk/home-responsibilities-protection-hrp/overview

e-mail Paul Lewis on paul@paullewis.co.uk