Personal Income Tax
| Tax rates and allowances (Table A)
The standard personal allowance has been increased by £1,000 to £7,475; the normal inflation-based increase would have been £310 (to £6,785). This is part of a strategy, set out in the Coalition Agreement between the Conservatives and Liberal Democrats, to raise the threshold for income tax to £10,000 and so remove low earners from the tax system altogether. The benefit of the increased allowance is offset for anyone with income over £42,475 by a reduction in the higher rate income tax threshold from £37,400 to £35,000. Taxpayers will start to pay 40% tax once total income exceeds £42,475 (£7,475 + £35,000); in 2010/11 the threshold was £43,875 (£6,475 + £37,400). Different rates on different types of income make comparison complicated, but tax is lower up to income of £43,475; on £43,875 and above it is £80 more in 2011/12. The following are unchanged:
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Future allowances
The personal allowance for 2012/13 has been announced in advance - a further above-inflation increase to £8,105. Other allowances will increase in proportion with the increase in the retail prices index. There will be a further cut in the higher rate threshold to £34,370 so that the benefit of the increased allowance will be offset for higher earners by more income being charged at 40%. |
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Foreign domiciled people Individuals who are "foreign domiciled" (generally those who have foreign parents and a substantial connection to a different country) are usually not charged to income tax or CGT on their foreign income and gains if they leave the money abroad. Since 2008, someone who has been UK resident for 7 of the last 9 years and claims the benefit of this "remittance basis of taxation" has had to pay a flat rate tax charge of £30,000 a year. Mr Osborne announced some reforms which are intended to take effect from April 2012, including:
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Gift Aid
Where a person makes a gift to charity, the donor can claim higher rate tax relief and the charity can claim a rebate of basic rate tax using the Gift Aid scheme. This is only supposed to benefit genuine gifts, so there are restrictions where the donor receives something in return for the donation. There has been an absolute limit on value received of £500. This is to be raised to £2,500, subject to a continuing limit of no more than 5% of the value of the gift itself.
