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BUDGET: Government to scrap age related allowances

The Government has announced plans to change age-related allowances. The first steps to abolishing these higher allowances come in the form of a rate freeze for the 2013 tax year.


The 2012 budget revealed the Government’s plans to change age-related personal allowances (known as ARAs). In the current system there have been different levels of personal allowance for different age groups. However the additional allowance for pensioners aged over 65 is being gradually withdrawn, in a move that should save the Government £1 billion by 2015.

From April the amount of tax-free earnings for the under 65s will be £8,105 which will change to £9,205 in the 2013-2014 financial year. Meanwhile for those over 65 the tax-free sum will be frozen. In 2013 those aged 65-74 will be able to earn £10,500 and those aged over 74 can earn £10,660 tax-free.

The BBC reports that HMRC figures show 4.41 million people will be on average £83 per year worse off than they would have expected from next year. These tax measures will not affect pensioners in higher earning brackets and have been called a ‘stealth tax’ or ‘Granny tax’ by critics. However, the move supports the Government’s goal of having a single personal allowance for taxpayers regardless of age, and a fair spread of tax relief for working age people and those taking pensions.