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Post Budget Briefing 2012 - The TaxPayers' Alliance

Post Budget Briefing 2012 - The TaxPayers' Alliance

Budget

Budget 2012The higher rate starts earlier at around £43,000 of earnings rather than around £49,000 in 2001‐02 (adjusted for 2013-14 average earnings). • Marginal tax rates for all those earning above the Personal Allowance earners have increased substantially. Those earning at the basic rate pay around 40 per cent and those earning above the higher rate threshold pay around 50 per cent, including national insurance contributions. The increase is largely due to an increase in the rate of Employers’ NI contributions. • There are much higher marginal rates between £107,000 and £122,000 and above £150,000 thanks to the clawing back of the personal allowance and the additional rate respectively. When combined with national insurance the 50p rate is actually a marginal income tax rate of nearly 60 per cent. With the new 45p rate, it will be nearly 55 per cent in 2013-14. 55 Tufton Street, London, SW1P 3QL • www.taxpayersalliance.com • 0845 330 9554 (office hours) • 07795 084 113 (24 hours) 6

3. Age-related allowances Budget 2012 Two groups are affected quite differently by these changes: those who are 65 already or turn 65 in 2012-13; and those who turn 65 in 2013-14 or later. Those who are 65 already, or turning 65 in 2012-13 Those born on or before 5 April 1948 will still get a special age-related personal allowance. It will be frozen at £10,500 for those born between 6 April 1938 and 5 April 1948. And £10,660 for those born before 6 April 1938. Those people are worse off than they might have expected to be, in that the allowance won’t rise with inflation. That is unfortunate given the pressure on savers already but they aren’t actually having their allowance cut from the existing rate. Those turning 65 in 2013-14 or later Those born on 6 April 1948 or later won’t get an age-related personal allowance. In 2013- 14, they will get the same personal allowance as everybody else – £9,205 – instead of £10,500 if they had been born earlier. That implies they will get £1,295 less in personal allowance than they would under the current rules, which means they are about £259 worse off at the basic rate of tax. They will only receive the same treatment as those who have already reached 65 when the personal allowance, which the Government are expected to keep increasing, catches up with the frozen age-related allowances. The Chancellor of the Exchequer made a powerful case in his Budget speech that removing the age-related allowances would produce a simpler tax system. But, particularly for that group now not getting an age-related allowance who expected to get it, that simplicity is being achieved at the expense of a substantial rise in taxes for many struggling elderly people from what they would have expected to pay. That won’t affect the many pensioners who don’t earn enough to exceed the Personal Allowance anyway. But for some it will be quite tough. It could have been fairer to either: Increase the age-related allowances in line with inflation, and let the working age Personal Allowance catch up as it increases above inflation. Or, just freeze the age-related allowance and let the increase in the working age Personal Allowance erode the difference without cutting it off for new entrants. 55 Tufton Street, London, SW1P 3QL • www.taxpayersalliance.com • 0845 330 9554 (office hours) • 07795 084 113 (24 hours) 7

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