Money
Tax and benefits
An update on tax allowances
People are still confused about changes in tax allowances announced in May which cut the tax deducted from wages or pensions in September
If you are under 65 this tax year, your tax allowance should have been raised by £600, from £5,435 to £6,035. This change was implemented in September and resulted in a one-off cut of £60 in tax.
Each subsequent month, tax should be £10 lower than earlier in the year. If you are 65 or more and get the higher age allowance of £9,030 (or £9,180 over 75), this change in the personal allowance will not affect you.
It was already raised by £1,180 above inflation and no one over 65 should pay more tax in 2008/09 – on the same income – than they did in 2007/08.
One group of over-65s will see a rise in tax allowance. They have an income of between £27,790 (£28,090 for over-75s) and £41,435 and do not get the age allowance; they receive the standard tax allowance instead. They will now get the new allowance of £6,035.
Some tax offices have said people over 65 do not get this allowance. That is not true. People of any age who pay higher-rate tax will not gain from the increase in tax allowance, because the threshold at which the 40% higher-rate tax cuts in was reduced from £36,000 to £34,800. That will take back the advantage of the higher tax allowance for anyone whose income is £41,435 or more.
* Written by Paul Lewis, this article first appeared in the November 2008 edition of Saga Magazine. Paul is the editor of Saga Magazine's Money News section, a regular financial expert on BBC Breakfast and the presenter of BBC Radio 4's Moneybox. Paul's opinions are his own and for general information only. Always seek independent financial advice.
