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Tories will not scrap tax taper

By Paul Lewis
BBC Radio 4's Money Box

Shadow chancellor George Osborne
The proposals would scrap basic rate tax on savings interest

The Conservatives have confirmed they will not scrap the "tax allowance taper" which means some over 65s pay a 30% rate of tax.

Shadow chancellor George Osborne told the BBC he could not afford to end the anomaly as part of other tax reforms.

His office confirmed that after income tax on savings interest is scrapped some over 65s could still pay 10% on some of their interest.

Mr Osborne stressed that over 65s with savings would benefit from the changes.

Basic rate

He told Money Box on BBC Radio 4

"The calculations we have made are that if you've got savings, if you're a pensioner then you are beneficiaries of this policy at a time when savers are seeing their income fall away."

We will continue to taper away the allowance… for reasons of affordability
Shadow chancellor George Osborne
His proposals would scrap basic rate tax on savings interest.

But anyone with an income above the higher rate tax threshold of £43,875 would
continue to pay 40% tax on it as they do now.

Allowance increase

George Osborne also confirmed that he would increase the tax allowance for those over 65 by £2,000 from its 2009/10 level taking it to £11,490 for those aged 65-74 and £11,640 for the over 75s.

But he said he could not find the money to give that allowance to all over 65s.

Those with an income above £22,900 would still see the allowance reduced by £1 for each £2 of income above that level.

"We will continue to taper away the allowance… for reasons of affordability given the state of the public finances and the limited resources available."

As a result, pensioners with savings income which takes them above £22,900 will still end up paying 10% tax on it as their allowance is reduced.

On incomes between £22,900 and £32,930 each £1,000 of savings income reduces the tax allowance by £500 leading to an extra £100 of basic rate tax being due.

Income from savings

George Osborne's office confirmed to Money Box

"In some specific circumstances the effect is a 10% marginal tax rate on savings, but this is still lower than the 30% marginal tax rate that exists today."

And George Osborne agreed that even some higher rate taxpayers would gain from his plans to cut the tax on savings.

Someone whose only income came from savings, where that took them into the higher rate tax band, would still not pay any tax on the amount under £43,875 saving them £7,236 a year.

George Osborne told Money Box

"If your entire income is from savings and you're a higher rate taxpayer then you benefit like other people do from the fact that the basic rate goes to zero."


BBC Radio 4's Money Box was broadcast on Saturday,
10 January 2009 at 1204 GMT.



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SEE ALSO
External internet links
09 Jan 09 |  Moneybox
Cameron makes savings tax pledge
05 Jan 09 |  UK Politics
Q&A: Tory savings policy
05 Jan 09 |  UK Politics


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