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Budget - March 2006
- Published: Monday, 25 April 2005
In his Budget on 22 March 2006 the Chancellor announced a range of changes and policies affecting tax allowances, tax credits, benefits, pensions, childcare and more. The summary below highlights key changes affecting individuals and families. For full details follow the links at the end of the page.
Personal and tax deductible allowances from 6 April 2006
The Chancellor announced the following increases in the personal and age-related tax allowances:
Personal allowance
This reduces the amount of your income on which you pay tax. The amount is per year unless stated.
| Type of allowance | 2005-06 | Change | 2006-07 |
|---|---|---|---|
| Personal allowance (age under 65) | £4,895 | +£140 | £5,035 |
| Personal allowance (age 65-74) | £7,090 | +£190 | £7,280 |
| Personal allowance (age 75 and over) | £7,220 | +£200 | £7,420 |
| Blind Person's Allowance | £1,610 | +£50 | £1,660 |
Married couple's allowance (includes civil partnerships)
Ten per cent of the amount shown is deducted from your tax bill, reducing tax. Amount is per year unless stated.
| Type of allowance | 2005-06 | Change | 2006-07 |
|---|---|---|---|
| Married couple's allowance (aged less than 75 and born before 6th April 1935) | £5,905 | +£160 | £6,065 |
| Married couple's allowance (age 75 and over) | £5,975 | +£160 | £6,135 |
| Married couple's allowance - minimum amount | £2,280 | +£70 | £2,350 |
| Upper income limit in order to qualify for age-related allowances | £19,500 | +£600 | £20,100 |
Working and Child Tax Credits rates 2006-2007
Working Tax Credit
Amount is per year unless stated.
| Type of allowance | 2005-06 | Change | 2006-07 |
|---|---|---|---|
| Basic element | £1,620 | +£45 | £1,665 |
| Couple and lone parent element | £1,595 | +£45 | £1,640 |
| 30 hour element | £660 | +£20 | £680 |
| Disabled worker element | £2,165 | +£60 | £2,225 |
| Severe disability element | £920 | +£25 | £945 |
|
50+ Return to work payment (16-29 hours) |
£1,110 | +£30 | £1,140 |
|
50+ Return to work payment (30+ hours) |
£1,660 | +£45 | £1,705 |
Childcare element of the Working Tax Credit
|
Type of allowance |
2005-06 | Change | 2006-07 |
|---|---|---|---|
| Maximum eligible cost for one child | £175 per week | no change | £175 per week |
|
Maximum eligible cost for two or more children |
£300 per week | no change | £300 per week |
|
Percentage of eligible costs covered |
70% | +10% | 80% |
Child Tax Credit
Amount is per year unless stated.
|
Type of allowance |
2005-06 |
Change |
2006-07 |
|---|---|---|---|
|
Family element |
£545 | No change | £545 |
|
Family element, baby addition |
£545 | No change | £545 |
|
Child element |
£1,690 | +£75 | £1,765 |
|
Disabled child element |
£2,285 | +£65 | £2,350 |
|
Severely disabled child element |
£920 | +£25 | £945 |
Child Benefit/Guardian's Allowance rates 2006-2007
Amount is per week unless stated.
| Type of allowance | 2005-06 | Change | 2006-07 |
|---|---|---|---|
| Eldest/only child | £17.00 | +£0.45 | £17.45 |
| Other children | £11.40 | +£0.30 | £11.70 |
| Eldest/only Child (Lone Parent Rate) | £17.55 | No change | £17.55 |
| Guardian's Allowance | £12.20 | +£0.30 | £12.50 |
Income Tax rates
Income Tax rates for the tax year 2006-2007 remain unchanged, but the tax bands have increased in line with indexation.
- 10 per cent for income within the starting rate tax band (£1 to £2,150)
- 22 per cent for income within the basic rate band (£2,151 to £33,300)
- 40 per cent for income above the higher rate band (over £33,300)
National Insurance Contributions 2006-2007
Employees Class 1 contributions and earnings limits
- the lower earnings limit for employees' Class 1 contributions to be raised to £84 a week from April 2006
- the primary and secondary thresholds for Class 1 contributions will increase to £97 a week
- the upper earnings limit for employees' Class 1 contributions to be raised to £645 a week
- the standard main rate of employees' Class 1 contributions below the upper earnings limit will continue to be 11 per cent, and above the limit will continue to be one per cent
Self-employed Class 2 and Class 4 contributions
- 'Class 2' NICs flat rate weekly amount of £2.10 stays the same
- Class 2 small earnings exception (below which you don't have to pay Class 2 NICs) raised from £4,345 to £4,465
- 'Class 4' NICs (payable as a percentage of your taxable profits) - rates remain at eight per cent between lower and upper profits limit and at one per cent above the upper profit limit; however lower profit limit raised to £5,035 and upper profits limit raised to £33,540
Voluntary Class 3 contributions
- the rate of Class 3 voluntary contributions increased by 20 pence to £7.55 a week
National Minimum Wage
The Chancellor confirmed that the National Minimum Wage for workers aged 22 and over would rise from £5.05 to £5.35 an hour from 1 October 2006. On the same date the development rate for 18-21 year olds will rise from £4.25 an hour to £4.45 and the development rate for 16-17 years olds will increase to from £3 to £3.30 an hour.
Taxes and Duties
Capital Gains Tax
The annual exempt amount for Capital Gains Tax increased to £8,800 for 2006-07. Principal private homes continue to be exempt from Capital Gains Tax.
Inheritance Tax
The threshold above which the value of estates is taxed at 40 per cent rises to £285,000 from April 2006. For the tax year 2007-2008 it will rise to £300,000; for 2008-2009 to £312,000 and in 2009-2010 to £325,000.
Stamp Duty
The threshold at which Stamp Duty is paid on property purchased increased to £125,000 (with exceptions remaining for properties in designated disadvantaged areas).
Other rates payable remain at one per cent of the purchase price between £125,000 and £250,000; three per cent for purchase prices between £250,001 and £500,000 and four per cent for purchase prices of £500,001 or more.
Tobacco and alcohol duty
The cost of a packet of cigarettes rises by 9p from 6.00 pm on 22 March 2006. The duty on a bottle of wine will rise by 4p and on a pint of beer it will rise by 1p from midnight 26 March 2006. The duty on spirits, champagne, sparkling wine and cider is unchanged.
Fuel and vehicle excise duty
Fuel duties will rise by 1.25p a litre from September 1, 2006.
A new range of graduated Vehicle Excise Duty (VED) rates become effective from midnight on 22 March 2006, ranging from zero up to £215 depending on carbon dioxide emissions. The effect will be that the duty paid on 50 per cent of cars will be frozen or reduced from midnight.
Graduated VED for Private Vehicles (registered from March 2001)
| £ per year VED band | CO2 (g/km) | Change | Petrol cars | Diesel cars |
|---|---|---|---|---|
| A | 100 and below | -£65 | £0 | £0 |
| B | 101 to 120 | -£35 | £40 | £50 |
| C | 121 to 150 | -£5 | £100 | £110 |
| D | 151 to 165 | 0 | £125 | £135 |
| E | 166 to 185 | 0 | £150 | £160 |
| F | 186 to 225 | +£25 | £190 | £195 |
| G* |
226 and above |
+£45 | £210 | £215 |
*for new cars registered after 23 March 2006
International shopping
A proposal to increase the tax and duty free allowance on goods brought into the UK from outside the EU to £340 from £145. The government has written to the EU Presidency suggesting that the limit be raised to £1,000 by 2011.
Savings and investments
Individual Savings Accounts (ISAs)
The higher limit on investment in ISAs - currently £7,000 overall, including up to £3,000 in cash - will be retained until at least 2010.
Child Trust Fund
The Child Trust Fund initial amounts remain unchanged:
- all children born since 1 September 2002 are entitled to receive a payment of £250, with children from low income families entitled to £500
- family and friends can add up to £1,200 per year to the fund
- interest on the account will be tax-free
The government confirmed that there will be a further payment of £250 (or £500 for low income families) when the child reaches seven years of age.
New Pension Rules from April 2006
New, simpler rules on pensions savings come into force from April 2006. For a summary of the key changes link to our related article below.
Pensioners
The Chancellor confirmed:
- free off-peak local area bus travel for disabled people and those over 60 in England from April 2006
- the above to be extended across England from April 2008
- Winter Fuel Payments will continue in 2006-2007 at the current level of £200 for those aged 60-75 and £300 for those aged 80 years and over
State Pension and Pension Credit
Basic and additional State Pension
- basic State Pension up from £82.05 to £84.25
Pension credit
Age 60 and above Guarantee Credit element:
- single up from £109.45 to £114.05
- couple up from £167.05 to £174.05
Age 65 and above Savings Credit element:
- single up from £16.44 to £17.88 a week
- couple up from £21.51 to £23.58 a week
Benefits and allowances from 6 April
Carers Allowance
- up from £45.70 to £46.95 a week
- earnings limit raised from £82 to £84 a week
Attendance Allowance
- higher rate up from £60.60 to £62.25 a week
- lower rate up from £40.55 to £41.65 a week
Disability Living Allowance (DLA)
Care component:
- highest rate up from £60.60 to £62.25 a week
- middle rate up from £40.55 to £41.65 a week
- lowest rate up from £16.05 to £16.50 a week
Mobility component:
- higher rate up from £42.30 to £43.45 a week
- lower rate up from £16.05 to £16.50 a week
Maternity Allowance (MA)
- standard rate up from £106 to £108.85 a week
- MA threshold remains at £30
Statutory Maternity/Paternity Pay/Adoption Pay
- earnings threshold up from £82 to £84
- standard rate up from £106 to £108.85
Statutory Sick Pay
- Earnings threshold up from £82 to £84
- Standard rate up from £68.20 to £70.05
Jobseekers Allowance
Contribution-based JSA personal rates
- Under 18 - up from £33.85 to £34.60
- 18 to 24 up from £44.50 to £45.50
- 25 or over up from £56.20 to £57.45
Income-based JSA personal allowances
- Under 18 - up from £33.85 to £34.60
- 18 to 24 up from £44.50 to £45.50
- 25 or over up from £56.20 to £57.45
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