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Income Tax and Personal Savings
| Income Tax Rates |
| Rates for 2004/05 are as follows: |
| |
2004/05 |
2003/04 |
| Starting rate band to |
£2,020 |
£1,960 |
| Tax rate |
10% |
10% |
| Basic rate band - next |
£29,380 |
£28,540 |
| Non-savings rate |
22% |
22% |
| Savings rate |
20% |
20% |
| UK dividend rate |
10% |
10% |
| Higher rate - income over |
£31,400 |
£30,500 |
| Tax rate excluding UK dividends |
40% |
40% |
| UK dividend rate |
32.5% |
32.5% |
| Trusts |
|
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| Tax rate excluding UK dividends |
40% |
34% |
| UK dividend rate |
32.5% |
25% |
|
| Personal Allowances |
| Rates for 2004/05 are as follows (ages are as at the end of the tax year): |
| |
2004/05 |
2003/04 |
| Allowances that reduce taxable income |
£ |
£ |
| Personal allowance |
under 65 |
4,745 |
4,615 |
| |
65 to 74* |
6,830 |
6,610 |
| |
75 and over* |
6,950 |
6,720 |
| Allowances that reduce tax |
| Married couple's allowance (MCA) |
| Age of elder spouse |
under 75* |
572.50 |
556.50 |
| |
75 and over* |
579.50 |
563.50 |
| |
minimum |
221.00 |
215.00 |
| The age-related allowances are progressively withdrawn if income exceeds |
£18,900 |
£18,300 |
| Minimum PA |
£4,745 |
£4,615 |
| Minimum MCA tax reduction |
£221 |
£215 |
| Tax Shelters |
| Enterprise Investment Scheme (EIS) up to |
£200,000 |
£150,000 |
| Venture Capital Trust (VCT) up to |
£200,000 |
£100,000 |
| * Higher allowances for those aged 65 or more are scaled back when income exceeds £18,900 (2003/04, £18,300). MCA is only available where at least one spouse was born before 6 April 1935. |
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Lloyd's underwriters
As announced on 9 April 2003, the reliefs available on incorporation of a business will be extended
to underwriters transferring their activities to a company or Scottish Limited Partnership on or after
6 April 2004. Thus underwriters will be able to carry forward income tax losses against future income
from the company (or profits from the partnership) and net gains on the transfer of assets to the
company can be held over.
Landlords
A residential landlord is not normally allowed to deduct from rents for income tax purposes the cost
of any improvements made to a let property. With effect from 6 April 2004, a deduction can be made
for the cost of loft or cavity wall insulation up to a maximum of £1,500.
Jointly owned shares in close companies
A change aimed at reducing exploitation by the use of the current rules on assets jointly held by
husband and wife to reduce tax means that from 6 April 2004 income distributions (e.g. dividends)
from jointly owned shares in close companies will be taxed by reference to the actual
ownership/entitlement, not the previously automatic 50:50 split which applied in many cases.
Taxation of trusts
Although further changes are expected to be announced in the 2004 pre-budget report, some
changes to the taxation of trusts have been confirmed.
From 6 April 2004, the income tax rate applicable to discretionary and accumulation and
maintenance trusts has been increased from 34% to 40% on most income, from 25% to 32.5% on
UK dividend income.
From 6 April 2005 a new basic rate will apply to the first £500 of income of trusts to which the trust
rate applies.
Changes to be confirmed in 2005 and backdated to 6 April 2004 will mean that trustees of trusts for
the vulnerable will be able to use the individual beneficiary's personal allowances and starting/basic
rate bands rather than initially account for tax at the rate applicable to trusts.
Immediate needs annuities
It was believed that annuities purchased to fund the costs of long term care were not taxable - this
has now been confirmed, with a consequential effect on the calculation of insurance companies'
profits for tax purposes.
Foreign earnings deduction
Workers on offshore installations are excluded from claiming the foreign earnings deduction due to
certain seafarers. The statutory definition of 'offshore installation' is to be changed, effective 6 April
2004, to ensure the deduction continues to be available only to those for whom it was intended.
| Pointer |
How sure are you that your savings will be adequate for your retirement?
Many people face potential poverty in retirement as a result of not saving enough
in their working lifetimes. |
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