Personal Taxation

Income Tax Rates and Allowances and NIC Rates
For 2007/08, the starting, basic and higher rates of income tax remain at 10%, 22% and 40% respectively.

The starting rate band is increased by £80 to £2,230, and the basic rate band by £1,220 to £32,370 (so that the higher rate applies to taxable income in excess of £34,600).

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). The ‘basic rate’ band for such trusts remains at £1,000.

The basic personal allowance is increased by £190 to £5,225. For this and other personal reliefs, and for NIC rates, see the table on page 1.

For 2008/09, it is announced in advance that the basic rate will reduce from 22% to 20%. The starting rate will be removed for earned income and pensions but will continue to be available for savings income and capital gains. Age-related personal allowances will increase in real terms by £1,180. The upper earnings limit for employee Class 1 NICs and the upper limit for Class 4 NICs will each increase in real terms by £75 per week (£3,900 for the year).

For 2009/10, the basic rate limit will increase in real terms by £800. Both the upper earnings limit for employee Class 1 NICs and the upper limit for Class 4 NICs will increase so as to equal the ‘new point at which the higher rate of tax becomes payable after personal allowances have been taken into account’. This is thought to mean the basic rate limit plus the normal personal allowance.

For 2011/12, the personal allowance for those aged 75 and over will increase to £10,000.

Armed Forces Operational Allowance
The Finance Bill will ensure that there is no tax charge to members of the armed forces for payments of the new operational allowance of £2,240 over a six-month tour of duty for service in Iraq, Afghanistan and the Balkans.

Armed Forces Redundancy Scheme 2006
The Finance Bill will ensure that payments under the new scheme will be tax-free (as with the previous scheme).