Income Tax Rates and Allowances
For 2005/06, the lower, basic and higher rates of income tax remain at 10%, 22% and 40% respectively.

The starting rate band is increased by £70 to £2,090, and the basic rate band by £930 to £30,310 (so that the higher rate applies to taxable income in excess of £32,400).

The special rates applicable to dividends and other savings income are unchanged.

The rate applicable to discretionary and accumulation trusts remains at 40% (32.5% for dividend income). Such trusts will have a new basic rate band of £500.

The basic personal allowance is increased by £150 to £4,895. For this and other personal reliefs, see the table on page 1.

Pension Schemes Earnings Cap
From 6 April 2005, the maximum level of earnings for which pension provision may be made under tax-approved occupational, personal and stakeholder pension schemes is increased by £3,600 to £105,600.

In addition, the final remuneration cap of £100,000 for occupational schemes approved after 16 March 1987 and before 27 July 1989 is also increased to £105,600. This has the effect of taking the cap on tax-free lump sums from £150,000 to £158,400 (i.e. 1.5 times final remuneration).

Civil Partnerships
The Civil Partnership Act 2004 (CPA) creates an entirely new legal status of civil partner, giving same-sex couples in the United Kingdom the opportunity of acquiring a legal status for their relationship. For tax purposes, the Government has announced that civil partners will be treated the same as married couples. The tax changes will take effect from 5 December 2005.
The most significant changes are as follows:

• Transfers between civil partners in lifetime or on death will generally be exempt from inheritance tax without limit.
• Only one property owned by a couple who are civil partners, whether that property is owned solely or jointly, may be treated as the principal private residence of either of them at any time for the purposes of capital gains tax private residence relief.
• Transfers of assets between persons who are civil partners who are living together will be on a no-gain no-loss basis for capital gains tax purposes.
• Pension tax legislation will be amended so that references to husband, wife, ex-husband, ex-wife, spouse, ex-spouse, surviving spouse, widow, widower will now include civil partner, former civil partner and surviving civil partner under the terms of the CPA.
• There will be an exemption from stamp duty and stamp duty land tax for transactions carried out in connection with the dissolution of a civil partnership so that transfers of shares or the transfer of the partners’ home from joint ownership into the sole ownership of one of the ex-partners is exempt.
• Where one of the partners was born before 6 April 1935 the partners will be entitled to an allowance equivalent to the married couple’s allowance.
• Anti-avoidance legislation will be extended to include civil partners in the same way as spouses, including the legislation relating to settlements, company control and the transfer of assets abroad.