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Income Tax and Personal SavingsIncome tax rates for 2006/07
* Higher allowances for those aged 65 or more are scaled back when income exceeds £20,100 (2005/06, £19,500). MCA is only available where at least one spouse was born before 6 April 1935. Landlord’s energy saving allowanceThe allowance enables landlords to claim an income tax deduction against rental income for the cost of loft or cavity wall insulation in a dwelling they let. The Chancellor announced that with effect from 6 April 2006 the deduction will also apply to the cost of draught proofing and insulation for hot water systems. Computers and mobile phonesEmployees with the private use of a computer provided by their employers have been exempt from tax on the first £500 of annual benefit in kind. This exemption is to be withdrawn, with effect from 6 April 2006. In addition, the exemption on the private use of employer-provided mobile phones will be restricted with effect from 6 April 2006, to cover one phone per employee. Further measures were announced:
Eye tests and glasses - VDU usersEmployees using VDUs are entitled to have the cost of eye tests and glasses for VDU use paid for by their employers.To ensure that no tax charge under the benefit in kind or voucher rules arises, the lists of exempt benefits and vouchers will be amended with effect from 6 April 2006 to cover the position whether the cost of the tests and glasses is paid direct to the provider, or by reimbursing the employee for the cost, or by the provision of a voucher. Qualifying life insurance policiesThe tax advantages of certain life policies have been lost as a consequence of the re-testing of policies on the variation of their terms. Variation may have occurred where there is a change in the method of calculating the investment return or on transfers of insurance business from one insurance company to another. The Chancellor announced that variations of the type described on or after 7 October 2005 will be disregarded, as will variations on an insurance business transfer. Pensions – ‘A’ Day – 6 April 2006As announced prior to today’s Budget statement there are widespread changes which come into effect on 6 April 2006. From ‘A’ day there is no limit on the amount that may be contributed to a registered pension scheme. The maximum amount on which an individual can claim tax relief in any tax year is the greater of the individual’s UK relevant earnings or £3,600. If total pension input exceeds the annual allowance of £215,000 there is a tax charge at 40% on the excess. This limit does not apply in the year that full pension benefits are taken.
Under the original rules applying from 6 April 2006, those applying for Enhanced Protection under the new pension rules would have been denied that protection if they had an ongoing term assurance (life cover) policy written under pension rules (sometimes referred to as section 226A and section 621 policies) or belonged to schemes which include stand-alone entitlements to death benefits. Finance Bill 2006 will contain confirmation that the continuing existence of these arrangements will not deny Enhanced Protection. It will be recalled that the Chancellor announced, in the 2005 Pre-Budget Report, that the rules for self-directed pension schemes would remove the tax advantages for investments in residential property and certain other assets - such as fine wines, classic cars, art and antiques. It is also worth noting:
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