Treasury Releases Tax Rates And Allowances For 2008-09

by Robert Lee, Tax-News.com, London

19 October 2007

The UK Treasury on Thursday published the official 2008-09 rates and allowances for Income Tax, National Insurance Contributions, State Pensions and Pension Credit.

All income tax allowances will be increased in line with inflation, according to the Treasury, and the personal allowance will increase to GBP5,435.

As announced at Budget 2007 the age related allowance has been raised by GBP1,180 above inflation to GBP9,030 for people aged between 65 and 74, and to GBP9,180 for those aged 75 and over. This will mean that in 2008-09, no one aged 65 or over need pay tax on an income of up to GBP173 a week. Around half of all pensioners pay no tax on their income.

With regard to National Insurance contributions, the starting point for employers', employees' and self-employed NICs in 2008-09 will increase in line with inflation to GBP105 per week. NICs are not paid on earnings or profits below this amount. The upper earnings and profits limits for NICs will increase from 2008 from GBP670 to GBP770 per week. For the self-employed, the rate of Class 2 contributions will increase to GBP2.30 per week.

The basic State Pension is also being raised in line with inflation. This means any individual entitled to a full basic State Pension will receive GBP90.70 in 2008/09. Married women can receive a Category B (lower) pension based solely on the pension entitlement of their husband - so, for example, a couple consisting of a woman with no entitlement of her own, and a man with full basic State Pension entitlement would receive GBP145.05.

The Pension Credit standard minimum guarantee is raised by 4.2%, honouring the commitment made at Budget 2007 to uprate in line with earnings growth as forecast at that time.

Income tax allowances are uprated each year by indexation unless legislation is passed to override its effects. Statutory indexation for 2008-09 is based on changes to the Retail Prices Index in the year to September 2007. A statutory instrument - the Income Tax (Indexation) (No. 2) Order 2007 - will be laid shortly, confirming the effect of indexation on the personal allowances, blind person's allowance, the married couples' allowances and the income limit for age related allowances for 2008-09. The above-indexation increases to the allowances for people aged between 65 and 74 and those aged 75 and over will be introduced in the 2008 Finance Bill.

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