The income tax rates and bands for 2006/07 were not announced in the Pre-Budget Report. Details of these are normally made available in the main spring Budget.
The Chancellor confirmed the level of income tax allowances for 2006/07. The allowances will be increased in line with inflation and are summarised below together with the other proposed allowances announced in the Pre-Budget Report.
| 2006/07 £ |
2005/06 £ |
|
| Personal allowance | ||
| - under 65 | 5,035 | 4,895 |
| - 65 – 74** | 7,280 | 7,090 |
| - 75 and over** | 7,420 | 7,220 |
Married couple’s allowance* |
||
| - aged less than 75 and born before 6.4.35** | 6,065 | 5,905 |
| - 75 and over** | 6,135 | 5,975 |
| - minimum amount | 2,350 | 2,280 |
| Age allowance income limit** | 20,100 | 19,500 |
| Blind person’s allowance | 1,660 | 1,610 |
| Notes * Qualifies for relief at 10% ** Reduce age allowance by £1 for every £2 of excess income over the income limit |
||
The Child Tax Credit, which is means tested, is potentially available to families who have responsibility for one or more children. The credit is paid direct to the main carer. There are several elements to the credit but broadly the maximum is an annual amount for 2006/07 of £1,765 per child together with a family element (one per family) of £545 per annum. The amount per child has been increased but the family element has been frozen since the introduction of the credit.
Some credit is likely to be payable for 2006/07 if a family’s income is less than £58,175 a year, or £66,350 if there is a child under one year old.
The Working Tax Credit (WTC) was introduced to reward the work of people on a low income. It also provides working families with assistance to meet the costs of childcare. The annual income threshold for 2006/07 is £5,220 (the same as 2005/06) with a reduction of 37p for every extra £1 of income. The basic maximum benefit is increased for 2006/07 to £1,665.
Childcare costs continue to form part of the WTC calculation at an increased rate of 80% of eligible costs up to a maximum of £175 per week (£300 if two or more children). The rate was previously 70%. This element is paid with Child Tax Credit.
Increases in income within a set limit, between one tax year and the next, do not reduce a previous entitlement to tax credits. The limit for this rises from £2,500 to £25,000 from April 2006. This should ensure that almost all families with increasing incomes will not have their tax credit entitlement reduced in the first year of the increase.
To provide greater certainty for claimants, from November 2006 the Revenue will apply automatic limits on recovery of excess amounts paid where awards are adjusted in the year following a reported change.
From April 2007, the time allowed to report a change that reduces tax credit entitlement will be decreased from three months to one month, shortening the time when people are potentially being paid too much.
From November 2006 it will be mandatory to report more changes in circumstances than at present.
From 2006 the deadline for the return of end-of-year information will be brought forward from the end of September to the end of August.
To improve compliance in the operation of tax credits, the Revenue will more than double the number of prepayment checks carried out on new claims and introduce new training and procedures so that staff can recognise potential fraud.
The Chancellor has announced various increases in respect of benefits for pensioners:
The government is continuing to review the residence and domicile rules as they affect the taxation of individuals and is considering various aspects of this issue.
The government introduced tax legislation in 2005 for individuals and businesses wishing to have access to financial products that comply with Shari’a Law. The government is consulting on how to encourage further innovation and ensure that tax does not create an impediment to the development of new products in this area.