Abolition of the 10% Tax Band and reduction of Standard rate to 20% [Merged]

Andy_L

Elaine_Wilson wrote: »

I ddon't quite get these comments about the lower amount of tax relief on pension contributions.

OK, assuming your salary doesn't change what happens after 5th April?

The tax relief on any pension contributions goes down. Let's say you pay a gross premium of £1,000. In practical terms this means you actually pay £780 now because of the 22% tax relief. After April the tax relief will drop to 20% so you will have to pay an extra £20.

But your net pay will have increased by £20 because the rate of tax has fallen so how are you worse off?

and if you were to retire now you'd only pay 20% income tax on a pension you'd received 22% tax relief (deferment) on (assuming a basic rate taxpayer)

derrick

sloughflint wrote: »

I thought it was always 20%.

It is, but until April 2008 there is a 10% tax rate band for the first £2000. of taxable earnings, that will disappear from earned income, but will remain for savings.

Keith1946

Thank you JEM16 for the links that you provided.

Murdina

I only have very modest earnings, so the increase in the pension is a straight hit for me.

Mikeyorks

sloughflint wrote: »

So how will banks tax savings from April then in view of what you say? 10%?

No ... it remains at 20%. The 10% band will operate as now .. that you can reclaim to that rate if your total income (inc gross interest) strays up to 2k above your personal allowances. And that excess solely comprises of interest.

Keith1946

I have done my calculations based on 2008/09 Free Allowance of £5,405 with a 10% Band of £2,230 (2007/08 figure), ignoring N.I. as my Income is via my Pension Fund.

Using your Break-even point of £15,000 I calculate the following:

Total Income £15,000.00
Less Free Allowance £ 5,405.00

Taxable Income £ 9,595.00

Tax Due Old System
£2,230 @ 10% £223.00
£7,365 @ 22% £1,620.30
Total Due £1,843.30

Tax Due New System
£9,595 @ 20% £1,919.00

Difference in Tax Due + £75.70 per. year (+ £6.30 per.month).

Using the same calculations, I estimate the Break-even point to be circa £18,800.
Bearing in mind I am ignoring National Insurance from the calculations.
If my calculations are incorrect then I am happy to be shown where I am going wrong. My Local Tax Office confirmed that I will be paying more tax in the coming Tax Year.

Keith1946

I dispute your figures, although you maybe allowing for National Insurance which I do not because my Income is from a Pension Fund so I am not liable to pay National Insurance.
I have put my method of calculating these figures on another thread where you were also disputing my figures. If my calculations are incorrect I would like to know why.
Either way your statement that I am "wrong" about paying more tax next year on Gross Income of £9,141, contradicts your own tables.

jennifernil

So if I have to revoke my entitlement to gross interest next year, and get taxed at 20% on my savings, I can apply for a tax refund as I will only be a few hundred over my tax free allowance? So I should only pay 10% on my savings interest?

I will only be over because the addition OH gets on his State Pension for me will become mine when I reach 60. And it will depend on interest rates too. I may not go over if they drop further.

seven-day-weekend

Hoddie wrote: »

I was just curious as to who would be adversely affected by the abolotion of the starting rate band next year?

Assume someone earning National Minimum Wage of £5.52/hour, working 37 hours per week, total annual income of £10,620.

Total tax bill 2007-08 is £919.
Total tax bill 2008-09 will be £1,037.
An increase of £118.

Assume someone £13.44/hour, working 37 hours per week, total annual income of £36,341.

Total tax bill 2007-08 is £6,577.
Total tax bill 2008-09 will be £6,181.
A decrease of £396.

The threshold at which the new rates become beneficial seems to be around the £16,500 mark. The government reckons changes to the Tax Credit system will offset any increased tax paid by low earners, but that assumes that people either have children or are aged 25 and working 30 hours or more per week.

It would seem that those hardest hit by the new tax rates will be the young and childless, quite a large group of people I'd have thought.

And people living on small occupational pensions.

Just seen Keith's post above, we are in a similar position and will be worse off.

jem16

jennifernil wrote: »

So if I have to revoke my entitlement to gross interest next year, and get taxed at 20% on my savings, I can apply for a tax refund as I will only be a few hundred over my tax free allowance? So I should only pay 10% on my savings interest?

Yes and yes.