1. INCOME TAX
1.1 RATES OF TAX
1.1.1 THE STARTING RATE OF INCOME TAX
The starting rate of 10% for the tax year 2003/2004 applies on the first £1,960 of taxable income (i.e. after allowances and reliefs).
It should be noted that the starting rate does not apply to trusts.
1.1.2 THE BASIC RATE OF INCOME TAX
For 2003/2004, the basic rate of income tax will be 22%. The higher rate threshold has been increased to £30,500. The basic rate will apply to income in the band £1,961 to £30,500. The basic rate of tax is relevant to:-
- Contributions to personal pensions, stakeholder pensions and FSAVC arrangements which will be made net of tax;
- Charitable covenants and Gift Aid;
- Annual payments.
1.1.3 THE HIGHER RATE THRESHOLD
The higher rate threshold has been raised to £30,500.
Whilst this appears good news, over the last 10 years the number of higher rate taxpayers in fact has increased because the higher rate tax threshold has not increased in line with earnings. Higher rate taxpayers will still have a need to shelter income from tax. This will be particularly relevant to income generated by investments.