I will be 65 and a pensioner at the start of the 2011/2012 tax year and noticed that the increase in the tax code is only going up by £500 instead of the £1000 that most everyone else will get. Is there a way to challenge this?
I think you may be slightly confused. When you say 'tax code' I think you are referring to the personal income tax allowance. This is the amount that an individual can earn before they have to start paying income tax. The amount of your personal allowance depends on your age and your total income during the tax year. The table below details the various personal allowances available:
|Income Tax allowances||2009-10||2010-11||2011-12|
|Personal Allowance for those under age 65||£6,475||£6,475||£7,475|
|Personal Allowance for people aged 65-74||£9,490||£9,490||£9,940|
|Personal Allowance for people aged 75 and over||£9,640||£9,640||£10,090|
But to complicate things slightly – from the 2010-11 tax year the Personal Allowance reduces where an individual's income is above £100,000 - by £1 for every £2 of income above the £100,000 limit. This reduction applies irrespective of age.
For those aged between 65-74 their higher personal allowance (£9,940 for the 2011-12 tax year) will reduce where their income is above the income limit for age-related allowances (which will be £24,000) by £1 for every £2 of income above the limit. But their personal allowance will not reduce to below that for someone aged under 65 with the same level of income as them.
What's this all got to do with you?
Well assuming that you don't have earnings in excess of £24,000 your personal allowance for the 2011-12 tax year will become £9,940 because you turn 65. So you will personally see your annual allowance increase from £6,475 (as it is in the current tax year) to £9,940 in April. So you certainly shouldn't have too many complaints.
Now the point of all the waffle in the section below the pretty table is to highlight that the over 65s get the same basic personal allowance plus a Brucie Bonus on top (so bringing their allowance up to £9,940), as long as they don't earn to much. If they earn too much then the Brucie Bonus is gradually taken away, but their personal allowance will never be below that of someone under 65 on the same level of income.
Yes, someone currently over 65 will only see their personal allowance go up by £500 while those aged under 65 see their allowance go up by £1,000. But even the over 65s also benefit from the £1,000 increase if they have sufficient income to warrant the complete removal of the Brucie Bonus part of their age related personal allowance. As their personal allowance won't drop below £7,475 (assuming they don't earn over £100,000 per year)
So you see, it's not all bad news and the £500 increase was certainly more than a lot of market commentators were originally expecting. But if you are still unhappy then I suggest that you write to your local MP.