The Chancellor announced that the inheritance tax threshold will be frozen for four years – three years more than previously announced in his Pre-Budget Report.
This means that the individual nil-rate band will stay at £325,000 until at least the 2013-14 tax year. Alistair Darling said this would help to pay for the cost of care for older people.
There will be no changes to the standard rate for capital gains tax in 2010-11, which will stay at 18%. Mr Darling made no further announcements on income tax, VAT or National Insurance.
New income tax band
The ‘double-whammy’ announced for top earners in December’s Pre-Budget Report will take effect from April 2010. They will have no tax-free allowance once their income reaches £112,950 and will pay a new additional-rate of 50% on earnings over £150,000.
The new 50% income tax band will hit anyone whose income is above £150,000 but the loss of personal allowance will affect anyone earning over £100,000.
Basic rate income tax remains unaltered at 20%, while a 40% tax rate applies to income over £43,875.
Tax-free allowance reduced
As indicated in the Pre-Budget Report, income tax allowances have been frozen for most people for 2010-11, with no increase on those for 2009-10. This means that the basic tax-free allowance stays at £6,475 for those aged under 65. Age-related allowances also stay at 2009-10 levels, £9,490 for those aged 65-74 and £9,640 for those aged 75 and above.
For those with income over £100,000, their personal allowance will be reduced by £1 for every £2 of income above £100,000. Anyone whose income reaches £112,950 will have no tax-free personal allowance. This means an additional £6,475 is taxable at 40%, adding £2,590 to their tax bill.
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