RATES OF TAX
THE STARTING RATE OF INCOME TAX
The starting rate of 10% for the tax year 2000/2001 applies on the first £1,520 of taxable income (i.e. after allowances and reliefs).
It should be noted that the starting rate does not apply to trusts.
THE BASIC RATE OF INCOME TAX
For 2000/2001, the basic rate of income tax (as announced last year) will reduce to 22%. The higher rate threshold has been increased to £28,400. The basic rate will apply to income in the band £1,521 to £28,400. The basic rate of tax is relevant to:-
Contributions to personal pensions and FSAVC arrangements which are made net of tax;
Charitable covenants and Gift Aid;
THE HIGHER RATE THRESHOLD
The higher rate threshold has been raised to £28,400.
This is likely to mean fewer people becoming higher rate taxpayers. Of course, for higher rate taxpayers there is still a need to shelter income from tax. This will be particularly relevant to income generated by investments.
PERSONAL ALLOWANCES, RELIEFS and CREDITS
Personal allowances and thresholds have been raised in line with inflation. This means:-
■ an increase in the personal allowance from £4,335 to £4,385.
■ an increase in the level of age allowance from £5,720 to £5,790 (for those aged 65 – 74) and from £5,980 to £6,050 (for those aged 75 and over).
■ an increase in the level of income that a person can enjoy before age allowance is cut back. This figure has risen from £16,800 to £17,000.
■ the MCA for those aged between 65 and 74 (provided at least one spouse is aged 65 or over before 6 April 2000) will increase to £5,185, and for those aged 75 and over will increase to £5,225.
■ the standard MCA is withdrawn from 6 April 2000.
■ the additional personal allowance is withdrawn from 6 April 2000.
■ the widow's bereavement allowance is withdrawn from 6 April 2000 except for women who were widowed during 1999/2000 who keep their widow's bereavement allowance in 2000/2001 for the second year of entitlement, unless they remarry before 6 April 2000. The allowance is increased to £2,000.
■ tax relief for maintenance payments will be available only where at least one party is 65 or over at 5 April 2000. The relief is increased to £2,000.
■ relief in respect of the MCA, widow's bereavement allowance and maintenance payments continues to be given as a tax credit at the rate of 10%.
MORTGAGE INTEREST RELIEF
It was announced last year that mortgage interest relief would be abolished from 6 April 2000. The relief was available at 10% for 1999/2000 for interest paid on up to £30,000 of a qualifying loan.
Special provisions have been made for elderly people with home income plans. Although relief on mortgage interest on a loan for the purchase of a life annuity ( only available to borrowers aged 65 or over under a scheme in which not less than 90% of the loan is applied to purchase an annuity) is no longer available for new loans with effect from Budget day last year (1999), existing qualifying borrowers continue to benefit from the relief at 23% (for 2000/2001) for the remainder of the loan period. There are provisions to enable existing plan-holders to move home or remortgage without losing the relief.
■ The threshold for tax exempt rents under the Rent a Room scheme for tax year 2000/2001 remains at £4,250.
TAX ON SAVINGS INCOME
As indicated in the Chancellor's pre-Budget report last year, the starting rate of 10% is to apply to savings income from 6 April 1999.