Mark Soper – RetireEasy
A huge fuss was made about the tax on pensioners following the changes to the age-related personal allowances announced in last week’s Budget but what does this all mean?
Currently, if you are aged over 65 you may be eligible for a higher personal tax allowance – this is the amount of income you can receive before you start paying any income tax. The standard allowance rises to £8,105 on 6 April this year but the age-related allowance will increase to £10,500 if you are aged between 65 and 74 and to £10,660 for those aged 75 and over.
However, not everyone over age 65 currently receives the full allowance as the extra amount above the standard allowance is gradually reduced when an individual’s taxable income is above £24,000 and it is removed completely once total taxable income exceeds £29,000.
So what has changed?
The Government has pledged to increase the standard personal allowance further from April 2013 but the age–related allowances will be frozen at the April 2012 level. Of greater impact is the complete removal of the age-related allowance for everyone who will not reach age 65 by 5 April 2013.
So what are the numbers?
The difference is quite stark as someone reaching age 65 on or before 5 April 2013 will receive an age-related allowance of 10,500 in April 2013 whereas someone reaching age 65 on or after 6 April 2013 will receive the standard personal allowance of £9205.
In money terms, by 2013/14 around 4 million existing pensioners will be worse off than expected by an average of £83 p.a. but the loss increases to an average of £285 p.a. for those who have not reached 65 by 6 April 2013.
Any other Impact?
Yes, around 230,000 individuals may now need to complete a self-assessment tax return every year.
What’s in it for the Government?
The initial saving to the Treasury is fairly modest at £360 million in 2013/14 but by 2016/17 the savings will have risen to a projected £1.25 billion every year.