New year brings higher bills

Thursday marked the beginning of the new tax year and millions of tax-payers will see a hike in their tax bills as five long-standing reliefs are abolished.

The guillotine has fallen on the married couple's allowance (MCA), the single parent's allowance, the widow's bereavement allowance and relief for maintenance and mortgage interest payments. These have all been subject to reductions in recent years - the MCA knocked just £197 off most claimants' tax bills in 1999/2000, as against £397 10 years ago - and their final demise was announced last year.

However, there are important transitional provisions to protect older taxpayers from this year's changes. The MCA is being retained for couples where at least one spouse was 65 or over by last Wednesday (April 5).

For 2000/01, the MCA has been set at £5,185 where the older spouse is between 65 and 74. This is given at 10% which cuts £518.50 off the tax bill, or almost £10 per week. As before, the MCA reduces if the husband's income exceeds £19,810, falling to just £2,000 (saving £200 in tax) once income exceeds £27,136. If either spouse is over 75, the MCA is £5,255, or a tax saving of £525.50.

While most people paying maintenance will now get no help from the taxman, if you are over 65 and pay non-voluntary maintenance, your tax bill will be reduced by 10% of what you pay, up to a maximum of £200 a year, and the money is tax-free to the recipient.

This is the same regime that used to apply to all maintenance arrangements entered from 15 March 1988.

This is far less generous than the old relief for maintenance paid under pre-March 15 1988 arrangements, which is now completely abolished. Until this week, such payments were relieved at 10% for the first £1,970, and then at the payer's top tax rate.

This meant that a 40% taxpayer paying £10,000 a year would get £3,409 back from the taxman. While the maintenance was taxable in the hands of the recipient, if they had no other income it would be largely covered by al lowances, and their tax bill could be less than £660. After tax, this meant that they received more than £9,340 at a net cost of £6,591 to the payer. This generous subsidy has now ended, and anyone previously benefiting should urgently review their arrangements.

For many years, relief has been available to those over 65 for interest paid on loans of up to £30,000 secured on their homes to purchase annuities. These loans are commonly known as home income plans. While this relief has been abolished along with mortgage interest relief, it will continue for plans entered before March 10 1999.

Against any loss of tax reliefs, you may detect some compensating gains in your net income this month, as the basic tax rate is reduced by 1 point to 22% and the national insurance contributions threshold rises by £10 to £76 per week, reflecting changes announced last year.

The latest Budget rises in allowances and tax rate thresholds, to reflect increases in the RPI, will not filter through until next month, so you may expect a small rise in net income in May.

From this week, employees claiming the working families' tax credit or disabled person's tax credit will be told that this must be paid through their pay packet, rather than directly by the Revenue.

Businesses have complained about the administrative costs of this change, while voluntary organisations fear discrimination against tax credit claimants and possible delays or mistakes by employers in delivery of the benefit.

Lord Haskins' Better Regulation Task Force has pressed the government to remind applicants with non-working or self-employed partners that they may reduce the risk of problems by identifying their partner as the claimant on the form, in which case they will receive payments directly from the Revenue.

David Brodie is director of TaxAid, the charity which provides free tax advice to people who cannot afford professional fees. Phone 0171-624-3768 between 10am and noon, Mondays to Thursdays