BRIEFING PAPER
Number 06158, 11 May 2016
Age-related personal
allowance
By Antony Seely
Contents:
1. Introduction
2. The decision to phase out the
ARA
3. Further developments
Annex 1: Main personal income
tax rates & allowances since
1990/91
Annex 2: Historical note on the
age-related allowance
www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary
2
Age-related personal allowance
Contents
Summary
3
1.
1.1
1.2
1.3
Introduction
Personal tax allowances for 2012/13
The income limit
The ARA and the state pension age
4
4
5
6
2.
2.1
2.2
2.3
2.4
The decision to phase out the ARA
Increasing the ‘basic’ personal allowance
The OTS report on pensioner taxation
Budget 2012
Initial responses
8
8
9
11
13
3.
Further developments
19
Annex 1: Main personal income tax rates & allowances since 1990/91
23
Annex 2: Historical note on the age-related allowance
25
Contributing Authors:
Matthew Keep
Cover page image copyright : No copyright required
3
Commons Library Briefing, 11 May 2016
Summary
All individuals are eligible to claim a personal tax allowance which they can set against
their liability to income tax.
In May 2010, the new Coalition Government announced that as part of its first Budget it
would introduce a substantial increase in the personal allowance, as the first step to
setting the allowance at £10,000. 1 The allowance was set at £6,475 for 2010/11, and in
his Budget speech on 22 June 2010, the Chancellor, Mr Osborne, announced that it
would rise to £7,475 from April 2011, and confirmed that the Government would
continue to increase the allowance “during the rest of this Parliament.” 2 Subsequently the
allowance was increased each year to reach £10,000 for 2014/15. 3
Prior to 2013/14, individuals were entitled to claim one of two age-related additions to
the personal allowance, if they were 65 years of age or older. In his 2012 Budget the
Chancellor, George Osborne, announced that from April 2013 these two allowances
would be phased out: each allowance would be frozen in cash terms, until they became
aligned with the ‘basic’ personal allowance. In addition, only existing recipients would be
entitled to claim either allowance. 4 From April 2013 the first of these allowances, fixed at
£10,500, was restricted to people born after 5 April 1938 but before 6 April 1948. The
second allowance, fixed at £10,660, was restricted to people born before 6 April 1938.
In the Conservative Government’s first Budget after the 2015 General Election, the
Chancellor George Osborne pledged to increase the personal allowance to £12,500 by the
end of the Parliament. As a first step, the allowance would be increased by £400 to
£11,000 for 2016/17. 5 As both age-related allowances have now been overtaken by the
personal allowance they have been withdrawn and taxpayers that were claiming these
allowances are now eligible for the ‘basic’ personal allowance. 6
This note gives some background on the age-related allowance (ARA) – before looking at
the Coalition Government’s decision to phase it out from 2013.
1
2
3
4
5
6
HMG, The Coalition: our programme for government, 20 May 2010 p30
HC Deb 22 June 2010 c179
HC Deb 20 March 2013 c944. For more details see, Income tax : increases in the personal allowance
(2010-2015), Commons Briefing paper SN6569, 17 June 2015.
HC Deb 21 March 2012 c801
HC Deb 8 July 2015 c336; Summer Budget 2015, HC246, July 2015 paras 1.130-4
For details of tax rates and allowances for 2016/17 see, HM Treasury, Overview of Tax Legislation and Rates,
March 2016 (Annex B).
4
Age-related personal allowance
1. Introduction
1.1 Personal tax allowances for 2012/13
Every taxpayer resident in the United Kingdom is entitled to a personal
allowance that can be set against any type of income for tax purposes.
Historically older taxpayers have been entitled to claim two additional
levels of the allowance. None of these allowances have been
transferable between spouses or civil partners. 7
For 2012/13 these three allowances were:
Under 65
£8,105
65 – 74
£10,500
75 and over
£10,660
For those on higher incomes, the addition made to the basic personal
allowance was gradually withdrawn – by £1 for every £2 the taxpayer’s
income exceeds a set limit. Only the age-related addition to the basic
allowance was withdrawn. For 2012/13, this income limit was £25,400.
As a result, for those eligible to claim the ARA, the benefit of the
additional allowance was not completely withdrawn until their total
income reached the following limits:
65 – 74
£30,190
75 and over
£30,510
Since April 2010 the basic personal allowance has been withdrawn in a
similar fashion from individuals whose incomes exceed £100,000: that,
is, the allowance is reduced by £1 for every £2 above this income limit,
until completely withdrawn.
In April 2000 a number of personal tax allowances were withdrawn,
including the married couples’ allowance (MCA) – which could be
claimed by either spouse or split between partners. At this time the
MCA was retained for couples that were receiving the ‘age-related’
MCA – given to couples in which at least one partner was 65 years old,
and set higher than the MCA given to couples under 65. For 2012/13
this allowance was set at £7,705. Tax relief for this allowance is
‘restricted’ to 10%; in effect taxpayers receive a credit worth 10% of
the MCA to set against their final tax bill – which in 2012/13 was £771.
The value of the MCA is gradually reduced for taxpayers earning above
the income limit, in the same way as the ARA. The withdrawal of the
MCA from elderly couples is subject to a minimum allowance, set at
£2,960 for 2012/13 and restricted to 10%. No couple entitled to the
allowance received less than this. Where a couple marry during the tax
year the allowance is reduced by one twelfth for each complete tax
month pre-marriage. In the first instance the MCA is given to the
7
Since 2015/16 individuals whose income is insufficient to make full use of their
personal allowance have been entitled to part of their allowance to their spouse or
civil partner, provided their partner is a basic rate taxpayer (see, Income tax allowances
for married couples, Commons Briefing paper SN870, 22 April 2016).
5
Commons Library Briefing, 11 May 2016
husband, though if couples elect, the minimum MCA can be transferred
to the wife or split equally between spouses. In previous years, in line
with the personal allowance, an age-related MCA was given to couples
between 65 and 74, and a second, higher MCA to those 75 or over. As
anyone born before 6 April 1935 would have reached the age of 78 or
over by 2012/13, it was only the second of these allowances that was
applicable. 8
1.2 The income limit
As noted, the age-related addition to the personal allowance was
withdrawn from pensioners whose incomes exceeded a set income
limit. It has been a long-standing aspect of the tax system that this
allowance is given to the elderly on modest incomes only, to help with
those expenses one is faced with when old (such as greater heating
costs). Indeed, the system of age related personal allowances was
introduced in 1975, though its operation was modelled on an
exemption for elderly people with small incomes, introduced in April
1957, which it replaced, as explained in an old Treasury publication:
Taxation of the elderly
1.59 The elderly receive a higher personal tax allowance unless
their total income exceeds a ceiling (calculated from the aged
income limit). For those with incomes above this limit, the
difference between the age allowances and ordinary personal
allowances was reduced by £2 per additional £3 of income until
1988-89, and by £1 per additional £2 of income since 1989-90.
Thus at a certain point the difference between the age allowance
and the ordinary personal allowance disappears (the 'run out'
point) … Pensioners with income above the ceiling but below the
'run out' point face a marginal tax rate of 1½ times the basic rate
i.e. 33 per cent …
1.60 A taxpayer, or taxpayer couple, is regarded as 'elderly' where
either partner is aged 65 or over, or reaches 65 during the tax
year. Taxation of the elderly has been guided by two separate
objectives: firstly that the elderly with more modest incomes
should be taxed more leniently; and secondly that investment
income to the elderly should be taxed less heavily since in many
cases this is the return to lifetime savings. The latter aim prompted
the age relief that was in force for the whole of the post war
period until April 1973. This was granted instead of Earned
Income Relief on total income (earned plus unearned) but was
applicable only on total incomes up to a given limit. … For
incomes slightly in excess of these limits marginal relief was
available so that tax could not exceed the tax payable if income
had been at the limit plus a given rate of tax on the excess ... In
April 1973 when the investment income surcharge was
introduced age relief was abolished and the elderly were given the
same exemption limit on investment income as all other taxpayers,
though briefly, in financial years 1977-78 and 1978-79, a specially
increased exemption was introduced for the elderly.
1.61 In addition to this relief to investment income an exemption
for elderly people with small incomes was available from April
8
The married couple’s allowance may still be claimed by this cohort of taxpayers. For
details on tax rates and allowances for 2016/17 see, Direct taxes : rates and allowances
2016/17, Commons Briefing paper CBP7535, 26 April 2016.
6
Age-related personal allowance
1957. Incomes below a limit … were exempt from income tax and
a marginal relief was available for incomes slightly above the limit
so that they should not be taxed any higher than the amount of
tax they would have paid with income at the limit plus the
marginal tax rate times the excess. This was abolished in April
1975 when the present system of age allowances was introduced
but the new system was designed to have a similar effect. 9
In the past governments have taken the view that tapering the ARA this
way was a fair and equitable way to mitigate the income tax burden on
pensioners – as set out in this PQ:
Mr. Swayne: To ask the Chancellor of the Exchequer what
powers he has to provide tax relief to the over-65s on savings and
earnings for those earning between £18,900 and £23,070.
Mr. Timms: Those over 65 are entitled to more generous
personal allowances than those aged below 65, while those over
75 have a greater entitlement still. In 2004 the personal
allowances for all those aged 65 and over were increased in line
with earnings by a provision in the Finance Act. The Chancellor
announced his intention at last December's PBR of introducing a
similar increase to the personal allowance for all those aged 65
and over in this year's Finance Bill. This over-rides the automatic
increase which is made in line with prices for all personal
allowances.
The higher allowances for those aged 65 and over are reduced
where their income is above a certain level. This level, £18,900 for
2004–05, is also increased automatically in line with prices. In
common with everyone else, those over 65 can withdraw funds
from any ISAs they have tax free. Consequently, this does not
affect their entitlement to age-related personal allowances. 10
1.3 The ARA and the state pension age
A second aspect of the ARA was that eligibility was based on someone’s
age – rather than the point at which the individual become entitled to
claim a state pension. When men have reached state pension age of 65,
they were able to claim the ARA, but by contrast, women who reached
state pension age when they turned 60 had to wait an extra five years
before they could claim it.
The reason for this apparent anomaly was that the allowance was age
related; its purpose: to provide help with the greater expenses one is
faced with when old (such as heating costs). This is why everyone was
able claim the allowance when they turned 65, why an additional
allowance was given to those aged 75 or over, and why eligibility was
not based on whether someone has retired or not. Successive
Governments took 65 as an appropriate age to strike a balance
between young and old – though, as discussed below, the Coalition
Government argued that the principle had a weaker claim, when the
level of the basic allowance provides a substantial tax-free allowance for
all taxpayers. 11
9
10
11
HM Treasury, Tax Benefit Reference Manual 2009/10 edition pp 25-26
HC Deb 17 March 2005 c 357W. see also, HC Deb 24 March 2004 c 840W
See, for example, comments by the then Pensions Minister Steve Webb at DWP
Questions on 23 April 2012 (HC Deb cc 654-5).
7
Commons Library Briefing, 11 May 2016
The case for providing the allowance on retirement does not appear to
have been raised in the House recently, but in answer to a PQ a few
years ago, the Labour Government noted that to extend the allowance
to just women when they reached 60 would be discriminatory:
Danny Alexander: To ask the Secretary of State for Work and
Pensions what estimate he has made of the cost of extending the
pensioners' tax allowance to women between the ages of 60 and
65 years.
Jane Kennedy: I have been asked to reply. Age related income
tax personal allowances are available for people over 65 years of
age. The cost of extending the age related income tax personal
allowance to all men and women aged 60 to 64 would be around
£1 billion in 2008/09. Introducing such a change for women only
would cost approximately half this amount but would not be
possible as it would discriminate on the basis of gender. Estimates
are based on the Survey of Personal Incomes 2005-06, projected
in line with Budget 2008 assumptions. 12
Of course there is the wider issue that historically the state pension age
for women has been 60 but has been 65 for men. In 1993 the then
Conservative Government announced that the state pension age would
be equalised, by having the pension age for women rise incrementally
from 60 to 65 over the period 2010 to 2020. Prior to this it had long
been argued on grounds of sex equality that the state pension age
should be the same for men and women, and cases in the British courts
on the grounds of sex discrimination and moves towards sex equality in
European law also contributed to the pressure for reform. In turn, the
Coalition Government legislated in the Pensions Act 2011 to speed up
the pace of this reform so that women’s state pension age will reach 65
by November 2018. 13
12
13
HC Deb 31 March 2008 c550W
For more details see, State pension age - background, Commons Briefing paper
SN2234, 7 February 2013, and, State pension age increases, Commons Briefing
paper SN6546, 3 March 2016.
8
Age-related personal allowance
2. The decision to phase out the
ARA
2.1 Increasing the ‘basic’ personal allowance
In the agreement underpinning the new Coalition Government
published in May 2010, the Government stated that it would “increase
the personal allowance for income tax to help lower and middle income
earners”:
We will announce in the first Budget a substantial increase in the
personal allowance from April 2011, with the benefits focused on
those with lower and middle incomes … We will further increase
the personal allowance to £10,000, making real terms steps each
year towards meeting this as a longer-term policy objective. We
will prioritise this over other tax cuts, including cuts to Inheritance
Tax. 14
In his first Budget the Chancellor, George Osborne, announced that the
basic personal allowance would be increased by £1,000 from April
2011. 15 At the time the Chancellor made no mention of the two ARAs,
though in answer to a PQ in July that year, the Government said it
would follow past practice, and announce them in the autumn, once
the figure for inflation in the year to September was known. 16 This
practice has allowed for updated tax codes to be issued to taxpayers
prior to the new tax year, and for the government to take into account
the statutory requirement to uprate allowances in line with inflation
Income tax legislation requires the main allowances and thresholds to
be increased in line with the Retail Prices Index (RPI) unless Parliament
determines otherwise. This statutory requirement - the so-called
“Rooker-Wise” amendment - was introduced under section 22 of the
Finance Act 1977. 17 The amendment was successfully made through the
cross-party co-operation of Jeff Rooker, Audrey Wise and Nigel Lawson.
All three argued that without indexation, inflation acted as an
unauthorised, unintended and unknown increase in taxation. By
ensuring that any real changes in allowances would have to be voted
on, the amendment ensured changes in the income tax structure would
be ‘out in the open’. Indeed, for most years since then, allowances
have either gone up in line with inflation, or by more than inflation. 18
When uprating the main allowances and thresholds, the relevant
inflation rate has been the increase in the RPI in the year to September,
prior to the start of the tax year. 19
The Government announced tax rates, threshold and allowances for the
2011/12 tax year on 2 December 2010, and as part of this, confirmed
14
15
16
17
18
19
HMG, The Coalition: our programme for government, 20 May 2010 p30
HC Deb 22 June 2010 c179
HL Deb 14 July 2010 c148WA
The statutory requirement to uprate allowances and thresholds, is consolidated in
sections 57 & 21 of the Income Tax Act 2007.
HL Deb 7 January 2010 c121WA
For more details see, HM Treasury, Tax Benefit Reference Manual 2009/10 edition
paras 1.16-19. House of Commons Deposited paper 2009-1987
9
Commons Library Briefing, 11 May 2016
that the two ARAs would rise in line with inflation. 20 In general there
was relatively little comment on the announcement although the charity
the Low Incomes Tax Reform Group argued that cutting the gap
between the basic allowance and those claimed by pensioners might
represent a new approach:
There is no getting away from the fact that the differential tax
advantage of being a pensioner has narrowed and will continue
to narrow every year of this Parliament if the coalition succeeds in
their ambition of raising the basic personal allowance to £10,000
(or £192 a week). But it may be that the Government is working
away as we write to produce a new strategy for pensioners?
A new strategy could be to let the basic personal allowance catch
up to the age-related allowances for pensioners on the basis that
it will provide tax simplification. It could be argued (but not by us)
that the world of work and the world of retirement is blurring as
people live and work longer so that there is no need for the
current distinction. No distinction might be attractive to the
Government as they struggle to implement the new Universal
Credit, an instrument that might not provide a seamless transition
between the world of work and the world of retirement. HMRC
may also find the operation of Real Time PAYE less than
straightforward with the pensioner tax regime.
Rather than let these things happen on an ad hoc basis, it would
be good to have a major and open debate about how the tax and
benefits systems fit together for the pensioner population as we
move forward. 21
In the 2011 Budget the Government announced the basic personal
allowance would be increased a further £630 to £8,105 in 2012/13. At
this time the Government confirmed that from April 2012 the default
indexation assumption for direct taxes would be the Consumer Price
Index (CPI). RPI would be retained for some allowances and thresholds
for the duration of the Parliament: specifically, the employer NICs
threshold, the age-related allowance and other thresholds for older
people. 22 In turn tax rates, allowances and thresholds for 2012/13 were
published in November 2011, and, as with the previous year, the
Government confirmed that both ARAs would be increased in line with
the increase in RPI to September 2011, which was 5.6%. 23
2.2 The OTS report on pensioner taxation
In July 2010 the Government established the Office of Tax Simplification
(OTS) to provide independent advice on simplifying the tax system, 24
and in July 2011 commissioned a review of pensioner taxation. In
requesting the review the Treasury Minister David Gauke asked for an
interim report prior to the 2012 Budget, with a final report with
recommendations later in the year. 25
20
21
22
23
24
25
HC Deb 2 December 2010 c85WS
LITRG press notice, Is there a tax policy for pensioners?, 7 December 2010
Budget 2011 HC 836 March 2011 paras 1.127-8
HM Treasury, Tax and tax credit rates and thresholds for 2012/13, November 2011;
Office of National Statistics, Consumer Price Indices September 2011, October 2011
HC Deb 20 July 2010 c8WS; HC Deb 20 July 2010 cc 175-184
Letter from Exchequer Secretary to the Chairman of the OTS, 5 July 2011
10 Age-related personal allowance
The OTS published the first of these reports on 6 March 2012. In this,
the authors listed the complexities arising from the operation of the
ARA, including the fact that many pensioners were unaware of their
need to claim the allowance, and that to taper the allowance, HMRC
required many of those with incomes over the income limit to file self
assessment tax returns. An extract is reproduced below:
The complexities of the age-related allowances are numerous:
26
27
•
not everyone is aware of them before they become a
pensioner;
•
the taper of the allowances is unfamiliar to pensioners
caught within its ambit, as no similar mechanism will have
operated to restrict the basic personal allowance during
their working life. The tapering of personal allowances for
those with incomes over £100,000 is unlikely to alter this
familiarity issue for the majority of new pensioners, as it will
only apply to a minority of higher earners;
•
by removing £1 of allowance for every £2 of income over
the threshold, the taper of the allowances creates a
marginal tax rate of 30% for those within its bracket;
•
the tax rate drops back to 20% thereafter until the
taxpayer‘s income reaches the higher rate threshold. For
instance, an extra £200 of income over the threshold is
taxed at 20%, i.e. tax of £40. It also removes £100 of agerelated allowance, creating a further tax charge of £100 at
20%, i.e. £20. The total additional tax is therefore £60,
which equates to a 30% effective rate;
•
the calculation of taxable income for the purposes of
calculating the taper is adjusted for various items such as
gift aid payments and pension contributions, which makes
its calculation complex;
•
the taper interacts with tapering of the married couple‘s
allowance … where that relief is also claimed, making the
calculation even more tortuous for older taxpayers;
•
the difference between the two levels of age allowance is
now small, yet having two different rates contributes to
complexity;
•
the age allowance has to be claimed 26 and the HMRC‘s
processes for so doing are not infallible, sometimes leading
to the allowances going unclaimed for many years, with tax
being overpaid as a result;
•
the tapering of the allowances makes it almost impossible
to collect accurate amounts of tax in-year, thus requiring an
end of year adjustment. It is therefore HMRC‘s policy to
keep in the self assessment system many taxpayers within
the tapering band; and
•
the entitlement to additional allowances at age 65 and 75
respectively is out of step with the state pension age, and
changes thereto. 27
This is a statutory requirement rather than an administrative one. See Sections 36(1)
and 37(1) Income Tax Act 2007
Review of pensioners’ taxation: Interim report, March 2012 para 3.4. The report gives
a short history of the ARA, reproduced at the end of this note.
11 Commons Library Briefing, 11 May 2016
The report listed a series of possible reforms – including the withdrawal
of the ARA, the abolition of the taper, and aligning the entry point with
the state pension age. 28 Although the authors did not reach any
conclusions as to the future of the allowance, they noted that “there is
little support for leaving both the structure of the allowances and the
way they are administered as they are”, and their simplification would
be a high priority in the second stage of their review. 29
2.3 Budget 2012
In his Budget speech on 21 March 2012 the Chancellor announced that
the personal allowance would be increased by £1,100 to £9,205 for
2013/14, but that the two age-related allowances would be phased out.
From April 2013 the ARAs would be frozen at their 2012/13 levels, until
the personal allowance catches up. In addition only existing recipients
of the ARAs would be entitled to claim them. In his speech Mr Osborne
set out a number of changes to simplify taxes, before setting out the
case for phasing out ARAs:
Two hundred years ago Adam Smith set out the four principles of
good taxation, and they remain good principles today: taxes
should be simple, predictable, support work and be fair. The rich
should pay the most and the poor the least. The tax system this
Government inherited from our predecessor has drifted far from
these principles. We have already addressed some of the problem.
We have established an Office of Tax Simplification to drive out
complexity. Companies are moving to Britain, not away. We
stopped the jobs tax. We have taken 1 million low-paid people
out of tax altogether. But now we need further reform. We need
to give Britain a modern tax system fit for the modern world …
We should also simplify the age-related allowances, which the
Office of Tax Simplification recently highlighted as a particularly
complicated feature of the tax system. The National Audit Office
points out that many pensioners do not understand them. These
allowances require around 150,000 pensioners to fill in selfassessment forms, and as we have real increases in the personal
allowances, their value is already being eroded. So over time we
will simplify the tax system for pensioners by doing away with the
complexity of the additional age-related allowances for anyone
reaching the age of 65 on or after 6 April 2013, and I will freeze
the cash value of the allowance for existing pensioners until it
aligns with the personal allowance. This will protect the existing
level of allowance pensioners have while introducing a new single
personal allowance for all. It is a major simplification, it saves
money, and no pensioner will lose in cash terms. 30
The Budget report gave details of how the allowances would be
withdrawn:
Changes to the personal allowance made by this Government
mean that the difference between existing ARAs and the personal
allowance is reducing. In 2010 the difference was £3,015 and it
will fall to £2,395 in 2013.
28
29
30
op.cit. para 3.19
op.cit. para 4.9
HC Deb 21 March 2012 c801
12 Age-related personal allowance
To support the goal of a single personal allowance for taxpayers
regardless of age, and to spread the tax relief fairly across working
age people and pensioners, from 6 April 2013 existing ARAs will
be frozen at their 2012–13 levels (£10,500 for those born
between 6 April 1938 and 5 April 1948, and £10,660 for those
born before 6 April 1938) until they align with the personal
allowance. From April 2013, ARAs will no longer be available,
except to those born on or before 5 April 1948. The higher ARA
will only be available to those born before 6 April 1938. These
changes will simplify the system and reduce the number of
pensioners in Self Assessment. 31
The report estimated that this measure would raise £360m in 2013/14
rising to £1.01bn by 2015/16. By comparison the increase in the
personal allowance was set to cost £3.32bn in 2013/14, rising to
£3.51bn by 2015/16. 32 As it transpired, the basic personal allowance
was increased by £1,335 from April 2013; this tax cut was estimated to
cost £4.46bn in 2013/14, and £4.84bn in 2014/15. 33
At the time HM Treasury estimated 4.41 million people would lose out
in real terms as a result of this measure, with an average loss of £83.
Despite this measure being labelled the “granny tax”, around 60% of
those to be affected were men and 40% women. In addition
individuals turning 65 in 2013/14 would lose out the most as they will
no longer be eligible for the higher allowance but would receive the
same personal allowance as those aged under 65. HM Treasury
estimated that 360,000 people would fall into this category, of whom
58% were men and 42% women. 34 On average, these individuals
would lose £285. 35
The Government did not publish any estimates of the numbers affected
in each constituency or local authority area. There are, however, figures
on the number of people aged 65 or over paying income tax in each
region, 36 which give a means to estimate the number of people in each
region affected by the freeze in the ARA, as shown below: 37
31
32
33
34
35
36
37
Budget 2012, HC 1853 March 2012 para 1.198-1.200
op.cit. p50 (Table 2.1 – items 1 & 26)
Budget 2013, HC 1033, March 2013: Table 2.2 – items g & s
HMRC/HMT, Overview of Tax Legislation and Rates, 21 March 2012, page A10
The maximum tax loss was put at £323 (HC Deb 26 November 2012 c72W). In fact
the relative loss was slightly less, as the basic personal allowance for 2013/14 was
£235 more than anticipated at the time of Budget 2012.
HMRC Statistics, Table 2.2. The absence of any figures at local authority or
constituency levels was noted in written answers at the time (eg, HC Deb 30 April
2012 cc 1204-6W).
This approach assumes the regional shares of those affected by the change in the ARA
is the same as the regional shares of all income taxpayers aged 65 and over. This is
an approximation as some taxpayers aged 65 and over will not lose out from the
change as their higher personal allowance is tapered away. At this time it was forecast
that around 375,000 people over state pension age would be higher or additional rate
taxpayers (HC Deb 24 October 2011 cc23-4W). They were not be affected by the
change to the ARA and nor were those basic rate taxpayers whose income was
sufficiently high that their ARA was tapered away.
13 Commons Library Briefing, 11 May 2016
Changes to age-related personal allowance
Regional estimates of numb ers affected, (thousands)
North East
170
North West
480
Yorkshire and Humber
340
East Midlands
320
West Midlands
370
East of England
450
London
410
South East
710
South West
460
Wales
240
Scotland
370
Northern Ireland
Total
Sources:
Note:
90
4,410
Library estimates based on HMRC data
Estimates based on numbers of income
taxpayers aged 65 and over
(a) figures rounded to nearest 10,000
2.4 Initial responses
Much of the initial press reaction to the 2012 Budget focused on the
Chancellor’s decision to cut the 50p additional rate of income tax to
45p from April 2013. Many commentators linked the costs of this
measure to the amounts to be raised by phasing out ARAs, 38 although
the cut in the additional rate was forecast to cost only £100m by
2014/15. 39 HMRC’s analysis of the impact of the 50p rate, which was
introduced in April 2012, found that the behavioural response to avoid
the new rate had cut forecast revenues by about £1bn. Similarly,
assessment of the likely response to a cut in the higher rate indicated
that this would significantly cut the cost of the 45p rate. 40
Nevertheless the withdrawal of ARAs was strongly criticised. AgeUK
argued that, “someone with an income as low as £10,500 who reaches
65 from April 2013 could be £259 a year worse than under the current
system with very little time to adjust their financial retirement plans.”41
The Financial Times quoted Dr Ros Altmann, director-general of the
Saga Group financial advice service for older taxpayers, saying the move
left “middle-class pensioners suffering a significant stealth tax.” The
paper also quoted Ian Mulheirn at the Social Market Foundation in
support of the change: “the so-called ‘granny tax’ is a bold move in the
right direction by the Chancellor. It sends a clear signal that young and
38
39
40
41
For example, “Pensioners fund tax cut”, Guardian, 22 March 2012; “’Granny tax’ hits
5m pensioners”, Daily Telegraph, 22 March 2012.
HC 1853 March 2012 p50 (Table 2.1 – item 3).
HMRC, The Exchequer effect of the 50 per cent additional rate of income tax, March
2012 (Annex A to the document gives the policy costing of cutting the additional rate
to 45p from 2013/14). For more details see, Income tax : the additional 50p rate,
Library standard note SN249, 25 November 2015.
Age UK, Age UK response to the Budget, 21 March 2012
14 Age-related personal allowance
working people cannot be expected to shoulder the entire burden of
this huge deficit reduction.” 42 More critically the paper’s Serious Money
columnist, Matthew Vincent, argued, “when is a tax not a tax? Answer:
when it’s the granny tax”:
No one is going to be taxed for being a granny, having a granny,
becoming a granny, or grabbing a granny… In fact, grannies have
retained their cherished position within the UK tax system: they
will continue to be allowed more tax-free income than other
members of the population – and for at least another three
years…
Let’s calmly consider what has actually happened. All pensioners
will keep their existing age-related tax allowances: £10,500 for
65-74 year olds, and £10,660 for those 75 and over. So, in cash
terms, there is no new or extra tax to pay. All that is being “lost”
is the prospect – never a guarantee – of future inflation-linked
increases which would have kept grannies’ allowances roughly
£1,000 higher than everyone else’s. These lost increases will only
last a few years, anyway, because as soon as the standard
personal allowance reaches £10,000 – in 2014-15 if the Lib Dems
get their way – everyone should start getting inflation-linked
increases again. Can the loss of a small future tax advantage be
called a tax? 43
In their post-Budget presentation, Paul Johnson, director of the Institute
for Fiscal Studies (IFS), suggested that, “despite this morning’s
headlines, this looks like a relatively modest tax increase on a group
hitherto well sheltered from tax and benefit changes”:
Most of the tax changes [in the Budget] were well trailed; only
one was not. The “surprise” was the announced phasing out of
the additional personal allowance enjoyed by pensioners. One
reason for surprise might be that the government has otherwise
fairly comprehensively protected pensioners from benefit cuts and
many of the tax increases that have affected the working age
population. Our analysis shows that they have lost considerably
less from recent tax and benefit changes than any other
demographic group. And over the past decade and more
pensioner incomes have risen faster than those of the working
age population.
Many pensioners have incomes too low to pay tax and therefore
will not be worse off because of this measure. Well-off pensioners
do not benefit from the additional personal allowance and
therefore will not lose out from its removal. The group who will
lose the most are those turning 65 in the next year or two who
expected to benefit from this allowance.
But perhaps this change should have been less of a surprise. The
increase in the standard personal allowance leaves the gap
between it and the additional allowance much reduced in any
case. If the justification for the additional allowance was to keep
pensioners with very modest levels of private income out of the
income tax system, the higher personal allowance will now largely
achieve that.
Despite this morning’s headlines, this looks like a relatively modest
tax increase on a group hitherto well sheltered from tax and
42
43
“Budget 2012: Personal Finance – Advisers’ view” & “Pensioners lose age-linked
allowance”, Financial Times, 22 March 2012
“Is granny’s retirement really so taxing?”, Financial Times, 24 March 2012
15 Commons Library Briefing, 11 May 2016
benefit changes. From this Budget we calculate that pensioners
will lose on average about one quarter of one per cent of their
income in 2014. But the Chancellor should perhaps have given
more notice of the change, giving new retirees especially more
chance to adjust, and making the change once the full £10,000
personal allowance is in place. And he should have avoided
dressing up what is clearly a tax increase as merely a
simplification. 44
In line with Mr Johnson’s last point, the Low Incomes Tax Reform Group
argued that this was not the form of simplification that the OTS had
envisaged:
Many older people never claim their age-related allowance
because they do not realise they are entitled to it. This measure
will at least simplify matters for them without creating any losses
in cash terms. However, in the course of simplifying one aspect of
the tax allowances system, it risks introducing a new set of
complexities. Alongside the married couple’s allowance (to which
entitlement is limited to couples one of whom was born before 6
April 1935), we will now have a confusing array of age-related
allowances fixed by date of birth. We are not sure this is therefore
the solution the Office of Tax Simplification might have envisaged
when they observed that age allowances are an area of
complexity for pensioners. Perhaps the Government would have
done better to wait for the OTS’s considered recommendation
before rushing headlong into legislating. 45
Many Member raised this issue in the debates following the Budget
statement; in his speech the then Shadow Chancellor, Ed Balls, argued
that the phased withdrawal of the allowance was deeply unfair:
At a time when fuel and food bills are going up for families on
middle and low incomes, the Chancellor has added to them all.
Whatever he says about the personal tax allowance, a family with
children earning £20,000 will lose £253 a year from April. …
Nearly 4.5 million pensioners who pay income tax will lose an
average of £83 next April, and people turning 65 next year will
lose up to £322. At the very same time, the Budget gave a tax
cut to the richest people in our country. The money could have
been used to cut fuel duty or reverse perverse cuts to tax credits
… Instead, the Chancellor chose to cut taxes for the 300,000 top
rate taxpayers … [The Chancellor] is cutting tax credits for the
poor, cutting child benefit in the middle, cutting tax help for
pensioners and cutting taxes at the top. That is his priority. 46
In response Vince Cable, then Secretary of State, cited wider changes to
the state pension which would benefit those affected by this measure:
I find it quite extraordinary to hear the shadow Chancellor
expressing such alarm about the impact of the Budget on
pensioners. I do not know whether he has looked at the
scorecard, but it is clear. In 2012-13, the effect of the increase in
the basic state pension and the pension credit minimum income
guarantee will be to transfer £1.75 billion to pensioners. The
impact of the changes on age-related allowances is £360
44
45
46
Paul Johnson, Director, Institute for Fiscal Studies, Post-Budget briefing 2012: Opening
remarks: Tax changes do not amount to a reform programme, 22 March 2012 pp1-2
CIOT press notice, Simplifying age-related allowances introduces new complexity, 21
March 2012
HC Deb 22 March 2012 cc956-60, 961
16 Age-related personal allowance
million—one fifth of the additional funding going to pensioners as
a consequence of this Budget.
When we look at the pensioner population, we of course see big
differences. There are 5 million pensioners who do not pay tax,
many of whom are poor, and who are not, of course, affected by
the changes at all. There is a small group of people—frankly, my
contemporaries—who have high retirement incomes and
considerable asset wealth, and it is right in principle that they
should pay a bit more. There is a group in between, as the
shadow Chancellor rightly said, of people who are not wealthy
and do not have particularly high incomes, but who could be
affected to a limited extent, as a result of inflation eroding the
value of the allowances—inflation is currently estimated at 2.5%.
Those people will benefit enormously from the increase in the
basic pension. 47
The issue was also raised during the second reading debate on the
Finance Bill on 16 April. Speaking for the Opposition Rachel Reeves
argued that the increases to the basic personal allowance would not be
progressive – in part because they would not benefit pensioners,
contrasting this with a cut in the standard rate of VAT:
A reduction in VAT helps people who do not pay income tax,
which includes the poorest people, and benefits pensioners. The
increase in the personal tax threshold does not benefit pensioners
one jot, nor people who are not earning enough to benefit from a
change in personal allowance … the changes to the personal
threshold are not a progressive policy, as hon. Members seem to
be claiming. In fact, they benefit those dual income households
on higher salaries much more than they benefit the poorest
people in society, many of whom do not pay tax. Of course, the
changes do not benefit pensioners at all as they are seeing their
tax allowance frozen. As a result, many pensioners will lose out by
up to £83 whereas people who are coming up to retirement will
lose out in the tune of more than £300 a year. 48
Responding to the debate Treasury Minister David Gauke argued that
there was no good reason in principle for those under 65 being entitled
to a smaller personal tax allowance that those above this age:
We must look at the changes in the context of the £275 increase
in the state pension. Labour Members tend to say, “That is simply
because of inflation,” but let me remind the House that the plans
we inherited from the previous Labour Government were for the
state pension to increase in line with average earnings. That
would have meant an increase of £127 less than our increase, so
the Government have increased it more than Labour would have
done … It will remain the case that those receiving employment
income above the retirement age will not pay national insurance
contributions ... Given that the personal allowance has increased
so substantially, it is reasonable and sensible to simplify the tax
system and have one generous personal allowance, regardless of
age. 49
Similar arguments were made when provision in the Finance Bill to set
allowances from April 2013 was debated by the Committee of the
47
48
49
HC Deb 22 March 2012 c965
HC Deb 16 April 2012 c42
HC Deb 16 April 2012 c130
17 Commons Library Briefing, 11 May 2016
Whole House 3 days later. 50 Referring to the forerunner of the agerelated allowance – old age relief, introduced in 1925 by then
Chancellor, Winston Churchill – Ms Reeves argued, “Churchill was right
… when he introduced [this relief] … People who are retired have fixed
incomes, as a result of which there are more pressures on them and
they cannot make up the additional changes [to the cost of living] …
The money which is being taken from those with pensions of just a few
thousand pounds a year is being spent on a tax cut for people for
whom this tax grab would have counted as mere small change.” 51 In
response Mr Gauke asked whether there was, in fact, “a strong,
principled case for different personal allowances based on age”:
We have not heard that case made today, other than the fact that
Winston Churchill thought it was a good idea in 1925 ... [This
clause] supports the Government’s long-term aim of simplifying
the tax system by creating a single personal allowance. It removes
the complicated tapering system, making personal allowances
easier to understand. In the longer term we will have a single,
generous personal allowance for everyone while ensuring that no
one is a cash loser. 52
The issue was also touched on in the Treasury Committee’s report on
the Budget, published at this time. The Committee noted that, “having
taken the exemplary step of setting up the Office of Tax Simplification
the Government took the decision to phase out age related allowances
whilst aware that the matter was receiving detailed examination by that
body. We hope that in future the Government will take proper
recognition of the work of the OTS.”53 The Committee also cited the
views of Paul Johnson, director of IFS, when he gave evidence following
the Budget statement:
Mr Johnson criticised the lack of time between the announcement
and the implementation of the policy. He pointed out that if it
had delayed implementation by a year, the Government would
have given people more time to plan for the changes, and, owing
to the fact that the personal allowance was due to increase again
in the following year, the financial impact on those just retiring
would be reduced:
“I think there are problems in the way that this was announced,
particularly coming in so quickly without giving people much of a
chance to plan. To get a sense of the scale here, the group most
affected will be those who are retiring next year because they will
not gain the expected benefit of it immediately. We think the
maximum loss, which is quite significant for that group, might be
up to £300 a year. If you are on a relatively modest income, that is
quite significant. For all the other groups the loss is only the loss
relative to what would have been indexation and the losses there
are much smaller.” [Q180]
The IFS submitted written evidence to the Committee estimating
what difference delaying the implementation of this policy would
50
51
52
53
Section 4 of FA2012 made provision for the proposed changes to the age-related
allowance from 2013/14; s4(6) removed the allowance from the scope of the RookerWise amendment.
HC Deb 19 April 2012 cc553-4
HC Deb 19 April 2012 c593. At the close of the debate, the House voted on this
clause, approving it by 299 votes to 230 (op.cit. c598).
Budget 2012, 17 April 2012, HC 1910 of 2010-12 para 105
18 Age-related personal allowance
have had on the group of people turning 65 and retiring in the
following year. This showed that, based on the assumption that
the Government will increase the personal allowance to £10,000
in 2014-15, the loss to those retiring in that year would reduce
from £323 to £214.[Ev65-6] 54
The Committee also published evidence submitted by the IFS on the
point raised by Mr Johnson after the Budget – that to date, pensioner
households had been ‘well sheltered’ from the Government’s tax and
benefit changes over the past two years to reduce the deficit: 55
Chart 1: Distributional impact of tax and benefit changes
implemented by current government up to and including
April 2014, by household type
54
55
HC 1910 2010-12 para 101-2
HC 1910 2010-12 p44. Of related interest the IFS also provided the Committee with
data on the distributional impact of tax and benefit changes since 1997/98, and the
trend in pension incomes over the past fifty years in comparison with incomes
generally (HC 1910-II Ev 65-67). On the question of wider generational trends in
incomes in relation to this debate see also, “Howls of protest from pensioners shouted
down”, Financial Times, 23 March 2012.
19 Commons Library Briefing, 11 May 2016
3. Further developments
In January 2013 the OTS published a final report on pensioner taxation
in which it made a number of recommendations. 56 The report did not
propose any changes to the ARA, although the authors acknowledged
that the decision to withdraw the allowance was a “big simplification”:
Our interim report suggested that we review the complexities
surrounding the age related allowance and its taper system in
particular. We have not considered this proposal further as the
Chancellor announced at Budget 2012 that the age related
allowance would be phased out. One personal allowance for all,
with the potential elimination of tapering, is clearly a big
simplification. It will remove a great deal of confusion, missed
claims for the higher allowance and problems with tapering and is
therefore something we would support from a simplification point
of view. However, we acknowledge there may be interim
complexities (and unmet expectations) for those caught in the
transition. 57
In February the Institute for Fiscal Studies reviewed the Government’s
decision in their ‘Green Budget’. The authors examined the financial
impact on pensioners, noting that those on the lowest as well as the
highest incomes would be unaffected by the reform:
Neither the lowest-income nor the highest-income pensioners are
affected. About 5.4 million individuals aged 65 or over (55% of
the total) with relatively low taxable incomes would not have paid
income tax in 2013/14 anyway; and a further 800,000 (9% of the
total) would not have benefited from the additional age-related
personal allowance because it is tapered away as annual taxable
income rises above (as of April 2013) £26,100. 58
For existing beneficiaries of the additional age-related allowances,
the cash freeze increases liability to income tax in 2013/14 by up
to £56 per year relative to the previous default of RPI indexation.
The biggest cash losses, relative to previous policy, are for
individuals who turn 65 during 2013/14 and who would, in the
absence of this policy, have benefited in full from the additional
age-related allowance 59 but instead will have the same allowance
as those aged under 65. Those individuals will pay £268 per year
(just over £5 per week) more in income tax than they would
otherwise have done. Note that this loss is considerably less than
it would have been without the substantial increases to the
allowance for those currently aged under 65.
In addition, phasing out the ARA would remove the capricious effect of
the income limit on individuals’ marginal tax rate:
Because the allowance for those aged under 65 has recently
increased so rapidly in real terms, the most obvious economic
justification for giving pensioners higher personal allowances – to
56
57
58
59
OTS press notice 02/13, Pensioner tax simplification proposals put forward, 23
January 2013
Review of pensioners’ taxation : final report, January 2013 p6. The Government’s
response was published alongside the 2013 Budget: Government’s response to OTS
pensioner taxation review, March 2013)
Source: authors’ calculations using the 2010/11 Family Resources Survey and TAXBEN,
the IFS tax and benefit microsimulation model.
Those with annual taxable income between £10,780 and £26,100.
20 Age-related personal allowance
save those with modest levels of private income from having to
interact with the income tax system and fill in self-assessment
forms – has been weakening. And as well as simplifying the
income tax system generally by harmonising the treatment of
different age groups, the reform also simplifies pensioners’
marginal income tax rate schedules, as shown by Figure 7.1.
Those who benefit from the additional age-related allowances
have 50p of the allowance withdrawn for every £1 by which
taxable income exceeds a certain level (£26,100 in 2013–14), until
their allowance is no higher than that for under-65s. This creates
an odd 10 percentage point spike in the individual’s marginal
income tax rate, 60 and it does so in a way that lacks transparency.
A welcome side effect of abolishing age-related allowances is the
abolition of this confusing taper.
One can always debate the appropriate generosity of the system
to different groups, given differing distributional objectives. But as
a structural simplification of the tax system, this reform is
sensible. 61
In his Budget speech on 20 March 2013 the Chancellor did not mention
the decision to phase out the ARAs, though he confirmed that the
personal allowance would rise to £10,000 from April 2014. 62 The
Government also indicated that from 2015/16 the allowance would rise
in line with inflation, and, as a result, overtake the APAs by 2017/18. 63
Following the 2013 Budget the Coalition Government did not given any
indication it was willing to reconsider this decision. In September 2013
the House debated an e-petition calling for the reintroduction of
60
61
62
63
Losing 50p of personal allowance costs 10p in additional tax, given the basic 20%
rate of income tax.
“Chapter 7: Tax and welfare reforms planned for 2013–14”, The IFS Green Budget,
February 2013 pp191-2.
HC Deb 20 March 2013 c944
Budget 2013, HC 1033, March 2013 para 1.170. Uprating in line with CPI from
2015/16 (Budget 2013: Policy Costings, March 2013 p53). Forecasts for CPI in, OBR,
Economic and Fiscal Outlook, Cm 8573, March 2013 (Table 4.1, p87).
21 Commons Library Briefing, 11 May 2016
ARAs; 64 on this occasion the Treasury Minister David Gauke said the
following:
It is … worth re-emphasising that as a result of the decision to
remove age-related allowances no one will pay more tax than
before. Other factors, such as wage inflation and increases to the
basic state pension, may, of course, affect tax liabilities, but no
one will pay more tax from one year to the next because of the
policy change alone. In fact, people over the age of 65 who pay
no income tax at all—about half of all pensioners—are completely
unaffected by the reform.
It is also worth reminding right hon. and hon. Members that, as
the Chancellor announced in the Budget two years ago, the
Government remain committed to exempting pensioners from
national insurance contributions. There is a strong, principled case
for that, because people have contributed throughout their
working lives on the basis of a return, and I distinguish that
argument from the one about personal allowances. I have
debated this matter on a number of occasions and have never
heard a strong case for those under the age of 65 having a lower
personal allowance than those over that age. 65
In December that year the Government was asked what it was doing to
mitigate the impact of the withdrawal of these allowances:
Julian Sturdy: To ask the Chancellor of the Exchequer what steps
he is taking to mitigate the effect of the freeze on age-related tax
allowances on pensioners.
Nicky Morgan: The Government remains committed to
supporting pensioners. No pensioner will pay more tax this year
than they did last year as a direct result of the freeze of agerelated allowances. Pensioners not receiving age-related
allowances will benefit from the Government's income tax cuts
just as working age taxpayers. The Government has introduced a
triple guarantee for the basic state pension and also protected key
benefits that make a real difference to the lives of millions of
pensioners every day. 66
Subsequently, in the March 2015 Budget the Chancellor confirmed that
the personal allowance would be set at £10,600 for 2015/16, 67 so that
taxpayers in receipt of the first age-related allowance claimed this higher
allowance from April 2015. 68 In this Budget Mr Osborne anticipated that
the personal allowance would be set at £10,800 for 2016/17. 69 After the
2015 General Election Mr Osborne presented the Conservative
Government’s first Budget on 8 July, and in this, he pledged to increase
the personal allowance to £12,500 by the end of the Parliament. As a
first step, the allowance would be set at £11,000 for 2016/17, and at
64
65
66
67
68
69
E-Petition 31778, Restoration of Age Related Tax Allowances, closed 22/3/2013. The
debate was scheduled by the Commons Backbench Business Committee.
HC Deb 9 September 2013 cc210-1WH
HC Deb 16 December 2013 c440W
Budget 2015, HC 1093, March 2015, para 1.207-10.
Provision to align the first age-related allowance from April 2015 was made by s2 of
the Finance Act 2014.
Provision to align the second age-related allowance from April 2016 was made by s5
of the Finance Act 2015.
22 Age-related personal allowance
£11,200 for 2017/18. 70 In turn, in his March 2016 Budget Mr Osborne
announced that the allowance would be set at £11,500 for 2017/18. 71
As a result of these changes all taxpayers, irrespective of age, have been
entitled to claim the basic allowance from April 2016.
70
71
HC Deb 8 July 2015 c336; Summer Budget 2015, HC246, July 2015 paras 1.130-4.
Initially provision to set the allowance for these two yeas was made by s5 of the
Finance (No.2) Act 2015.
Budget 2016, HC901, March 2016 para 1.83 . Provision to set the allowance for
2017/18 is made by clause 3 of the Finance Bill 2016.
23 Commons Library Briefing, 11 May 2016
Annex 1: Main personal income
tax rates & allowances since
1990/91
Table 1
Main income tax rates and allowances: 1990/91-2017/18
Allowances/Limits (£ per annum)
Personal
allowance
Lower/
Starting
Rates
Basic
Lower/
Rate Limit
Starting
Basic
Higher
Additional
Rate Limit
1990/91
3,005
n/a
20,700
n/a
25%
40%
n/a
1991/92
3,295
n/a
23,700
n/a
25%
40%
n/a
1992/93
3,445
2,000
23,700
20%
25%
40%
n/a
1993/94
3,445
2,500
23,700
20%
25%
40%
n/a
1994/95
3,445
3,000
23,700
20%
25%
40%
n/a
1995/96
3,525
3,200
24,300
20%
25%
40%
n/a
1996/97
3,765
3,900
25,500
20%
24%
40%
n/a
1997/98
4,045
4,100
26,100
20%
23%
40%
n/a
1998/99
4,195
4,300
27,100
20%
23%
40%
n/a
1999/00
4,335
1,500
28,000
10%
23%
40%
n/a
2000/01
4,385
1,520
28,400
10%
22%
40%
n/a
2001/02
4,535
1,880
29,400
10%
22%
40%
n/a
2002/03
4,615
1,920
29,900
10%
22%
40%
n/a
2003/04
4,615
1,960
30,500
10%
22%
40%
n/a
2004/05
4,745
2,020
31,400
10%
22%
40%
n/a
2005/06
4,895
2,090
32,400
10%
22%
40%
n/a
2006/07
5,035
2,150
33,300
10%
22%
40%
n/a
2007/08
5,225
2,230
34,600
10%
22%
40%
n/a
2008/09
6,035
n/a
34,800
n/a
20%
40%
n/a
2009/10
6,475
n/a
37,400
n/a
20%
40%
n/a
2010/11
6,475
n/a
37,400
n/a
20%
40%
50%
2011/12
7,475
n/a
35,000
n/a
20%
40%
50%
2012/13
8,105
n/a
34,370
n/a
20%
40%
50%
2013/14
9,440
n/a
32,010
n/a
20%
40%
45%
2014/15
10,000
n/a
31,865
n/a
20%
40%
45%
2015/16
10,600
n/a
31,785
n/a
20%
40%
45%
2016/17
11,000
n/a
32,000
n/a
20%
40%
45%
2017/18*
11,500
n/a
33,500
n/a
20%
40%
45%
Notes
Sources:
(a) From 2008/09, a 10 per cent starting rate of income tax is retained for savings income.
See text for further details.
* as announced at Budget 2016. These are not yet set out in legislation.
HM Treasury, Budgets 2010 - 16
Tax Benefit Reference Manual 2009-10,
24 Age-related personal allowance
Table 2
Age-related allowances: 1990/91 to 2017/18
£ per annum
Personal (a)
Married couple's (b)
65-74
75+
65-74
75+
1990/91
3,670
3,820
2,145
2,185
1991/92
4,020
4,180
2,355
2,395
1992/93
4,200
4,370
2,465
2,505
1993/94
4,200
4,370
2,465
2,505
1994/95
4,200
4,370
2,665
2,705
1995/96
4,630
4,800
2,995
3,035
1996/97
4,910
5,090
3,115
3,155
1997/98
5,220
5,400
3,185
3,225
1998/99
5,410
5,600
3,305
3,345
1999/00
5,720
5,980
5,125
5,195
2000/01
5,790
6,050
5,185
5,255
2001/02
5,990
6,260
5,365
5,435
2002/03
6,100
6,370
5,465
5,535
2003/04
6,610
6,720
5,565
5,635
2004/05
6,830
6,950
5,725
5,795
2005/06
7,090
7,220
5,905
5,975
2006/07
7,280
7,420
6,065
6,135
2007/08
7,550
7,690
6,285
6,365
2008/09
9,030
9,180
6,535
6,625
2009/10
9,490
9,640
..
6,965
2010/11
9,490
9,640
..
6,965
2011/12
9,940
10,090
..
7,295
2012/13
10,500
10,660
..
7,705
2013/14
10,500
10,660
..
7,915
2014/15
10,500
10,660
..
8,165
2015/16
10,600
10,660
..
8,355
2016/17*
11,000
11,000
..
8,355
2017/18*
11,500
11,500
..
..
Notes:
(a) from 2013/14 eligibility for the age-related allow ances w ill be restricted
to existing recipients
(b) Relief restricted to 20 per cent in 1994/95, 15 per cent from
1995/96 to 1998/99, and to 10 per cent from 1999/00.
Since 2000/01 the MCA has only been given to couples in w hich
at least one partner w as born before 6 April 1935.
The married couple's allow ance for 2017/18 has not yet been announced
* from 2016/17 age-related allow ances have been merged w ith the personal
allow ance. These are the allow ances as announced at Budget 2015 and Budget
2016.
Sources:
HM Treasury, Budgets 2010 - 16
Tax Benefit Reference Manual 2009-10,
25 Commons Library Briefing, 11 May 2016
Annex 2: Historical note on the
age-related allowance
In their interim report on pensioner taxation published in March 2012,
the Office of Tax Simplification give a historical overview of pensioner
taxation – including some notes on the provision of age-related
allowances, reproduced below: 72
*
Age-related Allowances
A.17 Reductions in liability from the “standard” rate of income tax have
been a feature of income tax since at least 1803. Starting in 1925/26
reliefs related to age have been introduced. These are:
•
Old age relief; 73
•
Age exemption; 74 and
•
Age allowance. 75
A.18 The 1925 old age relief was introduced to help those over 64 on
small incomes (less than £500 a year) and was given instead of earned
income relief. The justification for age relief was given by the
Chancellor, Winston Churchill:
Box A.1:
“I consider that the savings of old people on a small scale are
virtually earned income, and, therefore, a person over 65, whose
total income from investments or any other source does not exceed
£500 a year will gain the advantage ...”
[Hansard: HC Deb 28 April 1925 vol 183 cc86-9]
A.19 Age relief was repealed in 1972/73 by FA 1971.
A.20 An age exemption was introduced alongside the age relief by
section 13 FA 1957 to provide an exemption from income tax for a
single person with income less than £250 (£400 for a married
couple).This was replaced in 1975 by age allowance, designed to end
the position where when ―an elderly person's income exceeds the age
exemption limit, the benefit of the higher starting point begins to be
withdrawn immediately. 76
A.21 A differential age allowance was introduced in 1987 (section 26
FA 1987), which provided for an increased allowance if the taxpayer, or
one of a couple, was 80 or over (reduced to 75 in FA 1989).
A.22 During the period in question there was clear support in
Parliament for maintaining the various age reliefs, even if it was not
72
73
74
75
76
Review of pensioners’ taxation: Interim report, March 2012 pp69-70
Section 15 FA 1925
Section 13 FA 1957
Section 31 F(2)A 1975
Denis Healey, Hansard: HC Deb 12 November 1974 vol 881 cc273-5
26 Age-related personal allowance
considered appropriate to increase the thresholds. Until 1971,
Parliamentary debate focussed on extending age relief. When it was
introduced in 1925 the retirement age for men and women was 65.
During World War II the retirement age for women was reduced to 60,
but age relief continued to apply from age 65. From 1945 there were
various Finance Bill amendments to amend the age relief to apply to
women at age 60 but these were rejected.
A.23 From 1990/1991 the system of personal allowances was changed
to recognise independent taxation of wives‘ income. A new married
couple‘s allowance (MCA) applied to married men of whatever age,
with those over 65 and 75 entitled to an enhanced amount. The MCA
was transferrable to the wife if the husband could not use it. 77 In 1992
an election was introduced for either spouse to use half (with the other
half going to the other spouse) or all of 70 the allowance and in FA
1994 it was changed to become a tax reduction at the rate of 20%. In
FA 1999 78 the MCA became a transferable tax allowance available to
those born before 6 April 1935 and the rate was reduced to 10%.
A.24 For those born before 6 April 1935 making maintenance payments
to a former spouse there is a further allowance giving a tax reduction of
10% for payments of £244 or less. 79
77
78
79
Section 257 ICTA 1988
Section 31 FA 1999
Chapter 5 Part 8 ITA 2007
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