Another tax year begins, bringing with it new rates and allowances, and this year an extra little nugget. The phasing out of the age related allowances, a move which will start to effect pensioners in the 2013/14 tax year. To date, these allowances have meant that people who are 65 or over have been liable to tax on less of their income, but the complex administration has caused much distress and worry. Now, with the basic personal allowance steadily increasing bringing more people out of the tax system it has been possible to phase out the age related allowance. Politically we cannot comment but we can say that it will definitely simplify taxation for thousands of pensioners. No longer will people over 65 with incomes above a certain limit have to complete self assessment returns and cope with the complexities of tracking under and over payments, no longer will pensioners find themselves owing large amounts of money because the system has failed. The catch! Well, it may take a couple of years to phase out.
It works like this, if you are going to be 65 or 75 between 6th April 2012 and 5th April 2013 you will receive the age related allowance (ARA) lower rate £10,500 and higher rate £10660 respectively. The allowance will remain at this amount until the basic personal allowance catches up. If you are 65 after the 5th April 2013 you will not receive the ARA.
An example may make it clearer, if Mrs S becomes 65 on the 5th April 2013 she will receive £10,500 ARA, it will remain at £10,500 in the 2013/14 tax year, however if she had been born a day later and her 65th birthday falls on the 6th April 2013 she will remain on the basic personal allowance of £8105 for the 2012/13 tax year, rising to £9205 in the 2013/14 tax year. If dates are easier to follow you need to be born before 6th April 1948 to claim the lower ARA and before 6th April 1938 for the Higher ARA.
The main rates and allowances for 2012/13, subject to the Finance Bill being passed by Parliament later this year are as follows:
Basic Personal allowance – £8105
Age related allowance 65 to 74 – £10,500
Age related allowance 75 onwards – £10,660
Income level when ARA’s are restricted – £25,400
Income level when Basic personal allowance is restricted – £100,000
10% savings rate, limit above personal allowance – £2710
Basic rate of tax 20% – £0 to £34,370
Higher rate tax 40% – £34,371 to £150,000
Additional rate tax 50% – £150,001 and over
Married couples allowance (given at 10%, 3853 in tax code) – £7705
Now you have the figures it is a good idea to check your coding notices for 2012/13, check that you have one for each source of income and make sure you can account for all of the figures. If you agree, check that your employers/pension providers are using the code/s on your April payslip/s. If you disagree or things do not match, contact HMRC straight away on 0845 300 0627.
This article is by Tax Help for Older People registered charity no 1102276, offering free tax advice to older people on incomes below £17,000 a year. The Helpline number is 0845 601 3321 or geographical 01308 488066.