Money
Tax and benefits
Income tax changes
Changes to the tax system next month spell bad news for many older people on low incomes, writes Holly Thomas
The Government is to abolish the 10 per cent starting rate of income tax from April, which means people with a very small annual income will pay a bigger tax bill.
The basic rate of income tax is being altered to 20 per cent and the personal allowance for adults below state pension age will increase by £210 to £5,435.
This means the low income groups will have all or most of their earnings above the personal allowance taxed at 20 per cent instead of the previous 10 per cent.
The Government recognises that abolishing the lowest rate may also hit pensioners over 65 on low incomes, as well as those who work part-time, and even students.
To counteract that, the Chancellor is increasing the personal allowance for 65 to 74-year-olds from £7,550 to £9,030.
Those aged 75 and above will have their personal allowance increased from £7,690 to £9,180.
However, this leaves those under 65 unprotected.
Take, for example, a pensioner who has an income of £7,000 a year from a pension yet no other benefits. This individual would pay almost double the tax at around £315 instead of about £180 this year.
The new rules will hit women who quit work at 60 but don't enjoy the higher pensioners tax allowance until they reach 65 pretty hard.
Income tax for those below state pension age is currently calculated in stages, with everyone given a personal allowance of £5,225, which is tax-free.
The next £2,230 is taxed at 10 per cent, and remaining income up to £39,825 is taxed at the basic rate - 22 per cent.
All income above that is taxed at the higher rate, 40 per cent.
The new rates will apply from the beginning of the new tax year on April 6.
They were first announced in the Budget last year by Gordon Brown in his last stint as Chancellor.
Experts predict there is more bad news to come as Alistair Darling is preparing to deliver his first Budget against a backdrop of a worsening economy.
The Institute for Fiscal Studies calculated that taxes will have to rise by £8 billion by 2013 in order for the Chancellor not to break the borrowing and spending plans he has imposed.
* Holly Thomas is the deputy personal finance editor of the Daily Express and Sunday Express. Holly's opinions are her own and for general information only. Always seek independent financial advice.
