19 May 2008
The Government may have temporarily resolved the problem of the
10p tax rate, but there are signs that tax may remain a problem for
many households - especially pensioners.
Treasury officials were outlining plans to start taxing up to
420,000 pensioners with small pensions who have so far escaped
paying tax. Most of these people have no idea that their tax bills
are due to be increased by up to £200 a year from next
April.
These pensioners are receiving small private pensions of up to
£1,000 a year (or up to £1,500 in a few cases) but
until now have not been taxed on this income. This is because, back
in 1983, the Inland Revenue - in the throes of dealing with new
technology - decided it would be too complicated to have tax
deducted from these small pensions.
The Inland Revenue instructed pension providers - mainly
insurance companies but also a few final salary schemes - not to
deduct tax. The issue lay dormant until 2000 when the Inland
Revenue took the matter up again. Progress has been slow but having
taken legal advice on its options recently, they have now revealed
that they would start taxing these people from next April. The
Revenue also threatened to claim up to two years of back tax, worth
up to £440 - although some kind of compromise may be hammered
out on this.
