THE TREASURY should consider scrapping the married couple’s allowance and the 10% tax rate for savings income because they are little used and complicate the tax system, the Office of Tax Simplification (OTS) is expected to recommend in a report before next month’s Budget.
One source familiar with the OTS, which was set up by Chancellor George Osborne in 2010, said its report will likely recommend that the Treasury should review the benefits of the two tax breaks and decide if they are worth keeping.
However, scrapping the tax advantages could prove politically sensitive for the government because they would affect pensioners and call into question the government’s support for marriage through the tax system.
Prime Minister David Cameron has talked of introducing a new tax break for married couples.
People who are married or in a civil partnership and are living together can only claim the married couple’s allowance if the oldest spouse or partner was born before 6 April 1935.
The allowance – the amount of income someone can receive each year without having to pay tax on it – is worth up to £729.50 per year. It’s deducted from a person’s tax bill.
In 2007/2008 1.19 million individuals received the married couple’s allowance, HM Revenue and Customs said.
The 10% tax rate applies to savings income of up to £2,560 in the current tax year.
“Only a small number of people claim the 10% tax rate on savings and that is mainly because they have been advised to by their accountants,” said the source.
Another expert said that although only a limited number of people entitled to the married couple’s allowance and 10% tax rate on savings claimed them, abolishing them could prove too unpalatable for ministers.
“Under real tax simplification there will be losers and politicians are nervous about that,” the source said.
The OTS is also examining age-related tax allowances.
People aged between 65 and 74 and 75 and over and who have an income of up to £24,000 can claim a personal allowance of £9,940 and £10,090 respectively in the 2011/2012 tax year.
The basic personal allowance is £7,475 for income up to £100,000.
Tax experts have said that pensioners who are still working can sometimes be given the wrong personal allowances, resulting in them paying the wrong amount of tax.
John Whiting, tax director at the OTS, declined to comment on what it will say in its report.
He said that people had difficulties getting the right age-related tax allowances.
The first phase of the OTS’s project is highlighting areas of the tax system that are confusing and suggesting ways they can be improved. The second phase will be when the government decides what to do about the OTS’s recommendations.
Last year, the OTS proposed the integration of income tax and national insurance contributions, and simplifying taxation for the very smallest unincorporated businesses.
A thorough government review into the efficiency of HMRC is badly needed, the president of the ATT has claimed
The authentication service citizens will need to access before entering their digital tax account is close to going live
HMRC is under fire for allegedly obtaining warrants unlawfully for the detainment of four former KPMG partners
Report by the work and pensions select committee fears taxpayers losing retirement savings because of ‘unstable master trusts’