Significant changes in taxation and benefits

How the new rules could affect your finances

Since the start of this current tax year on April 6, there have been some significant changes in taxation and benefits that now apply. In September last year, Alistair Darling, the chancellor, raised the annual personal allowance, the amount that you can earn before you pay tax for those under the age of 65 to £6,035. This was to compensate those people who had been disadvantaged after the abolition of the 10p tax rate.

During this current 2009/10 tax year, if you are under the age of 65 the allowance has been increased to £6,475. In addition there has also been a £5-a-week rise in the starting point for paying primary Class 1 national insurance contributions (Lower earnings limit), from £90 (£4,680 a year) to £95 (£4,940).

There is also an increase in the personal allowance and the starting point for national insurance, plus an additional rise in the higher-rate threshold, to £37,400, for higher-rate taxpayers.

However, this is set to change next year following the chancellor’s announcement delivered during the Budget Report on April 22. The previously planned introduction of a new 45pc income tax rate from April 2011, on income over £150,000 will now be brought forward by a year and the rate will increase to 50pc.

In addition, the personal tax allowance will be withdrawn for those earning more than £100,000 from next April, instead of a year later. From April 2011, the exchequer also intends to restrict pension tax relief for those with incomes above £150,000.