News in brief

Retiring women could be disadvantaged under tax changes

The Government is scrapping the 10p starting rate of income tax, while cutting the basic rate of tax from 22p in the pound to 20p. The changes were announced by Gordon Brown is his last Budget as Chancellor and come into force on 6 April this year.

Women who retire at 60 but don’t receive the higher pensioners’ tax allowance until they are 65 will be particularly disadvantaged.

A pensioner under 65 on £10,000 a year who is not entitled to other state benefits now pays £783 in income tax. After April they will pay £913, so they’ll be £130 per year worse off. Those on £7,000 will be disadvantaged by as much as a 76 per cent increase in their tax bill, paying £313 instead of £177.50 this tax year.

School and university leavers under 25 with annual incomes up to £15,000 will also be worse off under the reforms. Those in work aged 25 and older will receive help through Working Tax Credit.

Pensioners over 65 will be protected from the changes because the Government is increasing the personal allowance, the amount they can receive tax−free, from £7,550 to £9,030.

For over−75s this will rise from £7,690 to £9,180. Those earning more than £15,000 a year will gain enough from the drop in basic rate tax to make up for loss of the 10p band.

Workers earning £35,000 a year will pay £360 less income tax.

Figures from the Office for National Statistics indicate there are 3.6m Britons aged between 60 and 64, and 7.2m households with a total annual income of less than £15,240. In this current tax year the personal allowance is £5,225 for the under−65s and this is set to increase to £5,435 from April.

Above the personal allowance for the under−65s, the next £2,230 above this amount is taxed at 10 per cent, the starting rate. After that, the basic−rate tax band of 22 per cent applies up to the next £32,370. It is this starting rate of income tax that will be abolished in April this year. However, the 10p tax band will stay for any income you make from interest earned on your savings.

A Treasury spokesman said: ’There are people who will be marginally worse off because of these tax changes. But it needs to be seen in context. We have spent £11bn more in real terms on pensioners this year than when we came to power, and from April the average pensioner household will be £28 better off.’