The ‘Granny Tax’Tuesday, March 27th, 2012
As we reported on 13 March 2012, The Office of Tax Simplification had previously identified the age-related allowances as a source of confusion and complexity. Further, the Coalition’s increases to the lower Personal allowance were reducing the difference between the lower and age-related amounts. In a move towards a universal tax allowance system, one of the only surprises in the Budget was the complete abolition of the age-related allowances. To achieve this, these higher Personal allowances will be frozen until the Lower allowance catches up with them in years to come.
To commence this move towards the universal allowance, no new age-related allowance would be allocated to people born on or after 06 April 1948, i.e. turning 65 from the start of the next tax year. Previously, these taxpayers could have expected to receive the first of the age-related allowances; however, these will no longer be issued.
Further, the allowances will be frozen at the level they are being allocated as at 05 April 2012. These are:
- Born on or before 05 April 1948 £10,500
- Born on or before 05 April 1938 £10,660
The tapering of the age-related allowance will still continue, at present, where the taxpayer loses £1 from the age-related allowance for every £2 of income in excess of £25,400. This tapering continues until the age-related allowance reached the Lower allowance (£9,205).
It is the ‘losers’ that always shout louder that the ‘winners’ in any Budget. And there is the real danger for No 11 Downing Street that this Budget will be known as the one that introduced the Granny Tax. However, we ask ‘Are pensioners worse off after all?’ In reality, the Budget announcement does not take any cash away from pensioners now. However, it is a reduction on what they would have expected to receive in the future.
Analysts point to the facts that pensions will increase by the ‘triple guarantee’, where pensions will increase by the value of earnings inflation, CPI or 2.5%, whichever is the higher. Further, the Government has stuck to its pledge not to means test the Winter Fuel Allowance or the Bus Pass. However, it does seem that the ‘Granny Tax’ does mark the end of the over-65s being protected from the Government’s austerity measures.
Mr Osborne described the new single Universal Allowance as a ‘simplification’ to the tax system and in line with the Government’s objective of spreading allowances across taxpayers, including pensioners. In Opposition, Ed Balls called it ‘a tax grab on grannies….done in the name of simplification, which just adds insult to injury’.
- Payroll Help 13 March 2012 – Taxation and Pensioners