Income Tax and Personal Savings

Income tax rates

  2013/14 2012/13
Basic rate band – income up to £32,010 £34,370
Starting rate for savings *10% *10%
Basic rate 20% 20%
Dividend ordinary rate 10% 10%
Higher rate - income over £32,010 £34,370
Higher rate 40% 40%
Dividend upper rate 32.5% 32.5%
Additional rate – income over £150,000 £150,000
Additional rate 45% 50%
Dividend additional rate 37.5% 42.5%
*Starting rate is for savings income up to the starting rate limit of £2,790 (£2,710) within the basic rate band. The rate applies to any balance of the limit remaining after allocating taxable non-savings income.

Personal allowances (ages are as at the end of the tax year)

Personal allowances (PA) 2013/14 2012/13
Born after 5 April 1948/under 65 *£9,440 *£8,105
Born after 5 April 1938 and before 6 April 1948/65-74 *£10,500 *£10,500
Born before 6 April 1938/75 and over *£10,660 *£10,660

The PA for those aged under 65 increases from 6 April 2013 to £9,440. The advantage to higher rate payers is countered by a lowering of the higher rate threshold, to £32,010 from 6 April 2013.

Married couple's allowance (MCA) 2013/14 2012/13
Either partner born before 6 April 1935 (relief restricted to 10%)
*£7,915 *£7,705
*Age-related allowances are reduced by £1 for every £2 that adjusted net income exceeds £26,100 (£25,400) to a minimum PA of £9,440 (£8,105) and to a minimum MCA of £3,040 (£2,960). Where adjusted net income exceeds £100,000, PA is reduced in the same way until it is nil.

Individual Savings Accounts (ISAs)

The annual ISA subscription limit for 2013/14 will rise from £11,280 to £11,520, up to £5,760 of which can be invested in a cash-only ISA.

The subscription limit for Junior ISAs, which are available to those aged under 18 who do not have a Child Trust Fund account, will rise from £3,600 to £3,720.

Personal allowances for 2014/15

For 2014/15, the personal allowance for those born after 5 April 1948 will be increased to £10,000, and the basic rate limit will be reduced to £31,865.

As set out at Budget 2011, once the personal allowance has reached £10,000, it will then increase by Consumer Prices Index (CPI) in future years, starting from 2015/16.

Exemption threshold for employment-related loans

The threshold for employment-related 'taxable cheap loans' to be treated as earnings of the employment, will increase from the current threshold of £5,000 to £10,000 for 2014/15 and subsequent tax years.

As long as the total outstanding balances on all such loans do not exceed the threshold at any time in a tax year, there is no tax charge.

Consequently employers will no longer be required to report details of small loans where the outstanding balance is £10,000 or less throughout a tax year.

Employee shareholder status

In October 2012 the Government announced its intention to introduce a new 'employee shareholder' status. Individuals adopting the status will be exempt from CGT on the disposal of up to £50,000 of shares acquired under the employee shareholder agreement.

In addition, on acquisition of the shares the first £2,000 of share value received by the employee shareholder will not be subject to income tax or NICs.

These measures will apply to shares received from 1 September 2013, when the new status comes into force.

Pension savings

The Chancellor has confirmed the reduction of the standard lifetime allowance to £1.25m and the annual allowance to £40,000 for tax year 2014/15 onwards.

Legislation will also introduce a transitional protection regime (fixed protection 2014) for individuals with UK tax relieved pension rights of more than £1.25m or who think they may have rights in excess of £1.25m by the time they take their pension benefits. Individuals will need to notify HMRC by 5 April 2014 if they want to rely on fixed protection 2014.

Individuals with fixed protection 2014 will be entitled to a personal lifetime allowance of the greater of £1.5m and the standard lifetime allowance.

Child Trust Funds

The Government will consult on options for transferring savings held in Child Trust Funds into Junior ISAs.

Life insurance: qualifying policies

Under the current regime there is no upper limit on the investment premiums payable into a qualifying policy (QP), allowing individuals to obtain unlimited relief from higher and additional rates of income tax.

Legislation will be introduced in Finance Bill 2013 to provide for an annual premium limit of £3,600 for QPs from 6 April 2013.

Transitional rules will apply to policies issued between 21 March 2012 and 5 April 2013 inclusive. Policies issued in this period will be restricted so that relief is only attributable to premiums payable, or treated as payable, in the transitional period and for premiums payable up to the £3,600 annual limit thereafter.

Cap on unlimited tax reliefs

As previously announced, a cap will be applied to certain income tax reliefs claimed by individuals from 6 April 2013 where they are otherwise unlimited. For anyone seeking to claim more than £50,000 in reliefs, a cap will be set at 25% of income (or £50,000, whichever is greater). However, following widespread controversy the cap on charitable donations will not go ahead.

Domicile and residence

Legislation will be introduced to provide a statutory residence test for individuals from 2013/14, and to eliminate the concept of 'ordinary residence' for tax purposes as far as possible. The legislation will also provide for a tax year to be split into a UK part and an overseas part in certain circumstances, together with new rules for the taxation of certain income and gains during a period of temporary non-residence.