Finance Bill Tracking Service 2010 | Budget 2010

BN01 INCOME TAX RATES, RATE LIMITS AND PERSONAL ALLOWANCES FOR 2010-11

Who is likely to be affected?

1. Income tax payers.

General description of the measure

2. Legislation will be introduced in Finance Bill 2010 to set the basic rate of income tax at 20 per cent, the higher rate at 40 per cent and the additional rate at 50 per cent. The Finance Bill will also set the amounts of personal allowances, the starting rate limit for savings and the basic rate limit as announced at the 2009 Pre-Budget Report (PBR).

Operative date

3. The rates, basic rate limit and personal allowances will have effect on and after 6 April 2010.

Current law and proposed revisions

4. The charge to income tax, the basic, higher and, from 2010-11, the additional rates of income tax are provided for annually in the Finance Act (FA). The provisions for income tax and the basic and higher rates for 2009-10 are in section 1 of FA 2009.

5. The 20 per cent basic rate applies to taxable income up to the basic rate limit of £37,400. The 40 per cent higher rate applies to taxable income above £37,400.

6. Existing legislation requires the Government to increase personal allowances and rate limits by secondary legislation where the Retail Prices Index (RPI) increases. The Income Tax (Indexation) (No. 3) Order 2008 set the personal allowances and basic rate limit for 2009-10. Subsequently, the amounts of the basic rate limit and the personal allowance in the Order were over-ridden by sections 2 and 3 of FA 2009.

7. There are no parallel provisions to set the personal allowances or rate limits should the RPI fall. Therefore, for 2010-11 these amounts will be set in the Finance Bill at their 2009-10 amounts as announced at the 2009 PBR.

8. The basic rate of income tax will remain at 20 per cent and the higher rate will remain at 40 per cent. The additional rate will be set at 50 per cent. The basic rate limit will remain at £37,400 and the additional rate will apply to taxable income above £150,000 as provided for by section 10 of the Income Tax Act 2007 (ITA).

9. The limit for the 10 per cent starting rate for savings will remain at £2,440.

10. The personal allowances will remain at their existing amounts. The personal allowance for those under 65 will remain at £6,475, the personal allowance for those aged 65 to 74 will remain at £9,490 and the personal allowance for those aged 75 and over will remain at £9,640. The amount of the personal allowance will be gradually withdrawn for all individuals (regardless of age) with incomes above £100,000 as provided for by section 35 of ITA. The rate of reduction will be £1 of personal allowance for every £2 of income above the £100,000 limit.

Further advice

11. If you have any questions about this change, please contact Paul Thomas on 020 7147 2479 (email: paul.thomas@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk