Calling it "a major simplification", the Chancellor announced plans to freeze the value of age-related tax allowances in order to bring these in line with the personal allowance - the income you can receive before you start paying any income tax. Pensions are more likely to call it "a major raid".
From 6 April 2013 existing age-related allowances will be frozen at their 2012–13 levels: £10,500 for those born between 6 April 1938 and 5 April 1948, and £10,660 for those born before 6 April 1938. Once they are aligned with the personal allowance, age-related allowances will be removed altogether.
From April 2013, age-related allowances will no longer be available, except to those born on or before 5 April 1948. The higher age-related allowance will only be available to those born before 6 April 1938. The government claims this will simplify the tax system and reduce the number of pensioners in self assessment but it will also line government coffers with an expected £3.3 billion.
As announced at Budget 2011, the income tax personal allowance will increase by £630 in cash terms to £8,105 in 2012–13, which translates to just £18 extra each month into a typical person's pocket. This will rise by £1,100 in the next financial year to £9, 205. The government's goal is to increase the personal allowance threshold to £10,000 by April 2015.
There will be a £630 cash decrease in the basic rate limit, taking it to £34,370. The higher rate threshold, which equals the sum of the personal allowance and the basic rate limit, will remain unchanged in 2012–13 at £42,475 but reduce to £41,450 from next year, pulling more people into the higher rate tax bracket.
The government also announced plans to provide people with an annual statement detailing where their tax payments are being used.
