Income Tax and Personal Savings

Income Tax Rates

Rates announced for 2001/02 are as follows:

2001/02 2000/01

Starting rate band to £1,880 £1,520

Tax rate (all income) 10% 10%

Basic rate band - next £27,520 £26,880

Non-savings income tax rate 22% 22%

Savings income tax rate 20% 20%

UK dividend income tax rate 10% 10%

Higher rate band – over £29,400 £28,400

Normal tax rate 40% 40%

UK dividend income tax rate 32.5% 32.5%

Personal Allowances

Rates announced for 2001/02 are as follows (ages are at the end of the tax year):

		2001/02	2000/01

Allowances that reduce taxable income		£	£
Personal allowance	under 65	4,535	4,385
	65 to 74	5,990	5,790
	75 and over	6,260	6,050
Allowances that reduce tax
Married couple's allowance
Tax reduction	65 to 74	536.50	518.50
	75 and over	543.50	525.50
Age allowance income limit		17,600	17,000

Married couple's allowance is available only to those couples in which at least one spouse was aged 65 or over on 5 April 2000

Children's tax credit
Tax reduction		520.00	-

Children's tax credit (CTC) is available to couples or single parents who have at least one child under the age of 16 at the start of the tax year who lives with them for at least part of the tax year. CTC is reduced by £1 for every £15 by which the claimant's taxable income exceeds £29,400. With effect from April 2002, in the year of a child's birth the rate of CTC will be £20.00 per week.

ISA limits

In November the Chancellor announced that the annual limit on investment in ISA's, due to be reduced from 6 April 2001, will instead be frozen until 5 April 2006. Up to £7000 can be invested in ISAs in 20000/01 and in 2001/02:

	Maxi ISA	Mini ISAs

Cash	Ł3,000	Ł3,000
Life assurance	Ł1,000	Ł1,000
Stocks and shares	Ł7,000	Ł3,000
Overall limit	Ł7,000	Ł7,000

Pensions

It is proposed that the earnings cap for occupational and personal pension schemes is increased from 6 April 2001 from £91,800 to £95,400.

New rules, previously announced, will apply to personal pension policies and stakeholder pensions with effect from 6 April 2001.

Tax tip

All personal pension premiums paid on or after 6 April 2001 will attract immediate basic rate tax relief at source. A premium paid on 6 April 2001 can still be carried back to 2000/01 to use up unused relief from earlier years.

Employee Share Schemes

The Chancellor announced a number of changes affecting employee share schemes.

Enterprise Management Incentives

The ceiling on the number of employees holding options under the Enterprise Management Incentive scheme is to be removed, and the limit on the value of options that can be granted has effectively been doubled. Under proposals announced in the Budget Speech the maximum value of options which can be granted is set at £3,000,000.

Further changes announced by the Chancellor include:

an extension of the time limit for the notification to the Inland Revenue of the grant of options from 30 to 92 days,
the removal of the requirement for prior approval for the alteration of share capital, and
with effect from 5 April 2001, the availability of "advance assurance" that a company will qualify under the scheme.

All-Employee Share Ownership Plan

The Chancellor announced:

the removal of the stamp duty charge on the purchase of shares by employees,
the removal of the income tax charge when an employer or trust meets the stamp duty liability or incidental plan operating costs, and
a change to the rules enabling employees changing jobs within a group of companies to satisfy the qualifying period by reference to their total period of employment within the group.

National Insurance Contributions on Share Options

As previously announced, employers are to be able to limit the NIC liability on share option gains (on options granted between 6 April 1999 and 19 May 2000) to the gain attributable to the growth in share price up to 7 November 2000. This change will come into effect when the Social Security Contributions (Share Options) Bill receives Royal Assent.