Budget Report - 9 April 2003

Income Tax and Personal Savings

Income Tax Rates
Rates announced for 2003/04 are as follows:
  2003/04 2002/03
Starting rate band to £1,960 £1,920
  Tax rate (all income) 10% 10%
Basic rate band - next £28,540 £27,980
 Non-savings income tax rate 22% 22%
 Savings income tax rate 20% 20%
 UK dividend income tax rate 10% 10%
Higher rate - income over £30,500 £29,900
  Tax rate excluding UK dividends 40% 40%
  UK dividend rate 32.5% 32.5%


Personal Allowances
Rates announced for 2003/04 are as follows (ages are as at the end of the tax year):
  2003/04 2002/03
Allowances that reduce taxable income £ £
Personal allowance under 65 4,615 4,615
  65 to 74* 6,610 6,100
  75 and over* 6,720 6,370
Allowances that reduce tax
Married couple's allowance
Age of elder spouse under 75* 556.50 546.50
  75 and over* 563.50 553.50
  minimum 215.00 211.00
     
* Higher allowances for those aged 65 or more are scaled back when income exceeds £18,300 (2002/03, £17,900). MCA is only available where at least one spouse was born before 6 April 1935.

Tax credits

Two new credits - child tax credit and working tax credit - replace the children's tax credit and working families' tax credit and disabled person's tax credit from April 2003.

Rates vary, but people on middle-incomes may qualify, especially where they are paying for childcare. To see if you might qualify, visit the Inland Revenue's Tax Credit website.

Pointer:
Make sure you pay your tax on time, otherwise interest and 5% surcharges may be due.


Pensions

The Chancellor announced that the earnings cap, by reference to which contributions to occupational, stakeholder and personal pension schemes are limited, is increased for 2003/04 from £97,200 to £99,000. The limitation applies to personal pension contributions by both employers and employees (a point to be "put beyond doubt" by legislation effective from 9 April 2003).

Employee benefits

A number of changes have been announced to the rules applying to some minor employee benefits:

The date on which these changes will be operative has not yet been announced.

Pointer:
Despite recent turmoil in the pensions industry, the basic concept of saving for retirement is still valid and sensible, with tax relief on contributions, pension funds largely tax-exempt, and perhaps the ability to minimise risk by holding funds in cash.


Homeworking

Where employees work at home and the employer contributes to additional household costs, that contribution would be taxable.

With effect from 6 April 2003 a payment at a rate of up to £2 per week can be paid tax free, without any requirement for evidence. A higher rate can be paid, but this will only be free of tax in cases where evidence can be produced to prove the additional costs.

Lloyd's underwriters

The current rules on the carry forward of trading losses and the reliefs on capital gains on incorporation are perceived to place obstacles in the path of underwriting members of Lloyd's wishing to convert to limited liability status.

It is intended that legislation will be introduced in the 2004 Finance Bill to remove those obstacles.

Charitable donations from self assessment repayments

As announced on 17 April 2002, the 2004 self assessment tax return will include an option for taxpayers who are due tax repayments to nominate a charity to receive all or a specified amount of the repayment. The Inland Revenue will make the donation direct to the charity.

The donor will also be able to claim that the donation is to be made under the Gift Aid rules.


Details