Tax

1 Introduction

Personal Allowances	£
Basic	4385
Age 65-74	5790
Age 75 & over	6050
Married couples basic	Nil
Married couples 65-74*	5185
Married couples 75 & over*	5255

* restricted to 10%

Income Tax
The basic rate of tax is 22%, as announced in the Budget. However, between 1992/93 and 1999/2000 the number of 40% taxpayers rose by a third, as earnings outpaced the rise in the threshold for higher rate tax. (Inland Revenue Statistics 1999 and ONS). In 2000/01 you may discover that you too have joined the higher rate taxpaying club.

2 Tax planning

Married Couples Allowance

The demise of the married couple's allowance had been widely noted, not least because the rate of relief had now fallen to 10%. Mr Brown confirmed that the married couple's allowance disappeared from 6th April 2000, adding an extra £197 to most couple's tax bills. However, the special married couple's age allowance will remain, provided at least one spouse was born before 6th April 1935.

Inheritance Tax (IHT)

At a time when double digit rises in property prices are being widely reported, the nil rate band for inheritance tax was increased by a mere 1.3% (£3,000) to £234,000. In many parts of the country, the exemption does not cover even a family home.

Mr Brown made no other revisions to inheritance tax. As this was his fourth Budget with no radical change to IHT, it seems likely that the Chancellor has decided to live with the current regime rather than undertake the reforms many commentators had long predicted. The stability of the tax structure means that now is a good time to review your IHT planning strategy.

If you arranged Life cover some years ago to protect your Estate, it may have to be reviewed to cope with the rise in property and investment values and the more competitive life rates now available.

3 The hidden Education Tax

The new academic year will soon be upon us, and with it yet another change in the financial support regime for students. For students, the maximum fee contribution will increase to £1,050 per year.

With very few exceptions, there are no grants for new students, but the maximum level of student loans has been increased. (See table below). At the same time, the entitlement to loans has been expanded. For the 2000/01 academic year only, 25% of the loans will be means-tested (generally based on parental taxable income): the balance is available to everyone.

The greater availability of loans is something of a two-edged sword. It should make life easier for those students who find that their parents are not willing (or able) to provide the assistance that the Department of Education and Employment deems appropriate. On the other hand, it will mean students will almost certainly have accumulated even larger debts by the time they graduate.

- The hidden Education Tax

For example, a student studying outside London could accumulate debts of over £11,000 on a three-year course, assuming the retail prices index and therefore maximum loan levels rise by 2.5% per year. Under current rules, this debt is repayable at the rate of 9% of pre-tax earnings over £10,000. Therefore, a graduate earning £20,000 a year would be expected to make loan repayments of £75 per month, out of net income. Allowing for loan repayment, basic rate tax and national insurance contributions, a graduate with an outstanding loan will lose 41p in the pound, once he or she breaks the £10,000 a year earnings barrier and will need about 13 years to repay the student loan.

If your children - or grandchildren - are likely to go to university, would you want them to start their working life with a five-figure debt and a marginal "tax" rate of 41%?

If your answer is no, then you need to start planning now to ensure that funds are available as an alternative to student loans. There are many ways in which this can be done, both through regular savings and by a lump-sum investment.

Student living away from their parents' home and studying:	Full year	Non Means-Tested Element	Final Year	Non Means-Tested Element
in London	£4,590	£3,445	£3,980	£2,985
elsewhere	£3,725	£2,795	£3,230	£2,425
Students living with their parents	£2,950	£2,215	£2,575	£1,935