Income tax rates and allowances have been announced as follows:

Income tax rates for 2002-03

Taxable income Rate First £1,920 10% £1,921 to £29,900 22% Over £29,900 40%

Savings income other than dividends will continue to be taxed at 20% for income falling between the starting rate and basic rate limits. Dividends continue to be taxed at 10% for income falling below the basic rate limit and at 32.5% above it.

The rate applicable to trusts remains unchanged at 34%.

The special trust rate on dividends is also unchanged at 25%.

Income tax allowances and reliefs 2002-03  2001-02
Personal allowance (each individual)     Age less than 65 4,615 4,535 Age 65 to 74 6,100 5,990 Age 75 and over 6,370 6,260 Married couple's allowance (per couple)*     Aged less than 75 and born before 6 April 1935 5,465** 5,365** Age 75 and over 5,535** 5,435** Minimum allowances (where income exceeds upper limit) 2,110** 2,070** Income limit for age-related allowances (each) 17,900 17,600

* Elder spouse's age determines rate of relief
** Given at the rate of 10%

It was announced that for 2003-04, the personal allowance for those aged under 65 would be frozen. The personal allowance for those aged 65 to 74 will be increased to £6,610, and for those aged 75 or over it will be increased by £240 above statutory indexation.

Pensions annuity rules
This is an area concerning those saving for retirement through Inland Revenue approved pension schemes. The Government issued a document called "Modernising Annuities" in February 2002. This followed a long period of speculation over whether the requirement for compulsory annuity purchase by the age of 75 might be relaxed. The paper emphasised the Government's intention to continue with the compulsory annuity purchase rule, and the announcement in the Budget refers only to the possible areas of reform of:

*allowing annuity holders to change the terms of their contract during the life of the annuity; and
*permitting some flexibility in the kind of annuity that can be used.

It seems that the compulsory annuity purchase rule is here to stay. Anyone saving for retirement needs to consider all possible options, including Inland Revenue approved pension schemes as well as savings outside such vehicles.

Relevant discounted securities
In 1996 the Government introduced a new regime for dealing with the taxation of company debt. These rules include some complex provisions relating to "relevant discounted securities". Without going into detail (because the rules are complicated), it has been possible to take advantage of these rules to create a tax loss that an individual can set off against his or her taxable income. This type of planning has obviously become popular, because the Inland Revenue issued a Press Release on 26 March 2002 to block one particular variant of it. The new rule prevents an income tax loss from being created where an individual pays more than market value to a connected party for a relevant discounted security ("RDS") that that party issues to him, and then transfers the RDS to another connected party.