The effect of Osborne's 2012 Budget on the over 65s
04 April 2012
The recent Budget saw a surprise change to the age-related personal allowance, which comes into force in April 2013. The biggest of these changes will be the freeze on income tax breaks for the over 65s.
Income tax personal allowance is the first portion of income that anyone earns which is tax-free. Everyone, regardless of age, has a tax-free allowance and this is now set to rise by £1,100 in April 2013 to £9,205. However, if you are aged 65 to 74 you receive a bigger allowance. The first £10,500 will be tax-free from April 2012. If you are 75 and over then the personal allowance increases once more to £10,660.
So what will change?
- The personal allowance for the over 65s will be frozen at the same levels as 2012-2013.
- Anyone turning 65 after 5th April 2013 will not get any extra allowance. They will instead be on the same personal allowance as the under 65s - £9,205 - from April 2013.
George Osborne claimed that this phasing out of age-related personal allowances is part of the simplification of a complex tax system. Critics, however, label it as a tax on pensioners. Either way such a change will save the government £360 million in the 2013-14 tax year, rising to a staggering £1.25 billion a year by 2016-17.*
How could this affect your finances?
Many of us at this age will be in or approaching retirement and if this is the case your budget for your later years might take into account the current age related income tax system.
With the government freezing this scheme and phasing it out for those of us turning 65 after 5th April 2013, an extra unplanned cost could well have a negative effect on your retirement budget.
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*BBC March 2012