Compact Services

  2004 Budget - Personal Taxation

Income tax and capital gains tax rates

  2004/05 2003/04
Starting rate on first £2,020 £1,960
Basic rate on next 29,380 28,540
Higher rate on taxable income over 31,400 30,500

Rates differ for

General Savings Dividend
Starting 10% 10% 10%
Basic 22% 20% 10%
Higher 40% 40% 32.5%

Allocation of rate bands

Taxable income uses up the rate bands in the following order:

  • 'general income' (employment, business profits, rent)
  • 'savings income' (mainly interest)
  • 'dividends' (mainly distributions from companies)

Capital gains (after annual exemption and taper relief, see Personal Taxation and Capital Gains Tax) are added to the total income as the 'top slice' and taxed at the rates applicable to savings income (10%, 20% or 40%).

Extension of basic rate band

A taxpayer who pays personal (including stakeholder) pension policy premiums, or cash gifts to charity, increases the basic rate band by the grossed up equivalent of the payment. This means that more tax is paid at the basic rate and less is paid at the top rate.

Filing of return and payment

2004/05 personal tax return: due to be filed by 31 January 2006

  • penalty for late return: £100 (or the tax due, if less)

2004/05 tax payable:

  • tax on employment income paid under PAYE each month
  • basic rate liability on savings and dividends usually settled by receiving the income net of tax paid or credited
  • balance of tax due under self assessment (SA):
    • payments on account due 31 January 2005 and 31 July 2005, based on the 2003/04 SA income tax and Class 4 NIC
    • balance, plus any CGT, due 31 January 2006, with the first payment on account for 2005/06

Missing any payment dates leads to interest; missing the balancing payment date by 28 days will lead to a 5% surcharge and a further 5% surcharge if not paid by 31 July.

Main personal allowances

  2004/05 2003/04
Personal income tax allowance £4,745 £4,615
CGT annual exemption 8,200 7,900
Blind person's allowance 1,560 1,510

Age allowances

  2004/05 2003/04
Personal allowance (PA)
• Age 65 - 74 in the tax year £6,830 £6,610
• Age 75 and over in the tax year £6,950 £6,720
• Minimum* £4,745 £4,615

Married couple' allowance (MCA)**
• Age 65 - 74 £5,725 £5,565
• Age 75 and over £5,795 £5,635
• Minimum* £2,210 £2,150

Income Limit*
£18,900 £18,300

* If the taxpayer's total income exceeds the income limit (extended for gift aid and pension contributions), one-half of that excess is deducted from the allowances - first from the PA until the minimum is reached, then from the MCA until the minimum is reached.
** Amount depends on age of older spouse; allowed at 10%; nil if born after 5 April 1935; reduced if marriage took place during the tax year.

Main personal reliefs

Rent-a-room exemption for letting out part of the taxpayer's only or main residence: gross income of £4,250pa

Gift aid: on a cash gift to charity, the charity can reclaim 22/78 (28.2%) of the donation from the Inland Revenue if the donor makes a declaration. The donor increases the basic rate band by the gross gift (100/78). The market value of gifts of land or quoted shares can be deducted from taxable income for full tax relief, and the charity pays no tax on the gift received.