20% Means 20% Report and Proposition.

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A decision made (15/05/2006) regarding 20% Means 20% Report and Proposition.

Subject:	20% Means 20% Report and Proposition
Decision Reference:	MD-TR-2006-0068	Exempt clause(s):		n/a
Type of Report: (oral or written)	Written	Person Giving Report (if oral):		n/a
Telephone or e-mail Meeting?	n/a	Report File ref:		JM/01/15/05/06
Written Report – Title	Phasing out Allowances for Taxpayers on Higher Disposable Incomes	Written report - author		Julian Morris – Fiscal Strategy Programme Manager
Decision(s): To agree to present to States Members on 19th May 2006, the attached Report and Proposition.
Reason(s) for decision: In May 2005 the States agreed to the principle of phasing out tax allowances for taxpayers on higher disposable incomes as part of a package of measures aimed at replacing the tax revenues lost by the move to 0/10% corporate rate of tax. The purpose of this proposition is to approve the detail of the phasing out of the allowances for higher earners over a five year period, commencing 2007, in order to achieve the target yield from the tax of at least £10m.
Action required: Approve the release on Friday 19th May 2006 of the attached Report and Proposition and inform the States Greffe accordingly.
Signature: (Minister/ Assistant Minister)			Date of Decision: 15th May 2006

20% Means 20% Report and Proposition.

THE STATES are asked to decide whether they are of opinion:-

to refer to their Act dated 13th May 2005 in which they agreed a progressive package of tax and benefits, and to agree -

(a) that all tax allowances and reliefs, other than approved pension contributions, allowable employment expenses, child allowance, additional personal allowance and allowances on the first £1,000 of life assurance premiums on all policies in existence as at 31st December 2006, should be phased out over a five year period, commencing 1st January 2007, for those paying income tax at the standard rate of 20%;

(b) that exemption thresholds for all taxpayers should be increased by 2.5% for the years of assessment 2007, 2008 and 2009; and

(c) that the option for all taxpayers to continue to receive all exemptions and allowances and to pay tax at the marginal rate of 27% should be retained following the introduction of the changes set out in (a) and (b) above.

MINISTER FOR TREASURY AND RESOURCES

Phasing out Allowances for Taxpayers on Higher Disposable Incomes

Introduction

In May 2005 the States agreed to the principle of phasing out tax allowances for taxpayers on higher disposable incomes as part of a package of measures aimed at replacing the tax revenues lost by the move to 0/10% corporate rate of tax.

The purpose of this proposition is to approve the detail of the phasing out of the allowances for higher earners over a five year period, commencing 2007, in order to achieve the target yield from the tax of at least £10m.

Progressive Tax Package

In the Fiscal Strategy the States approved a progressive package of tax and benefit measures capable of generating £55m. The form of GST proposed, together with income support, will tend to be proportional, i.e. the amount of tax paid will increase proportionally with incomes.

To ensure that the overall tax package was progressive the Finance and Economic Committee’s proposal was also to phase out income tax allowances for higher earners.

Because of the high level of tax allowances in Jersey it is, at present, not uncommon for households with incomes in excess of £100,000 to be paying an effective rate of tax of less than 15%. Though the effect will vary, depending upon households’ circumstances, generally the Committee’s proposals would have increased the rate of tax paid by a married couple earning £100,000 by up to 3%, i.e. up to £3,000 a year. The proposals were a means of increasing the effective rate of tax for higher earners without raising the headline 20% rate of tax which has been in existence for 65 years.

Amended Proposals

Over the past five years incomes have increased but tax exemption thresholds, apart from an increase for the year of assessment 2003, have remained constant. Consequently, recent calculations have shown that the anticipated tax yield, based on the proposals originally put forward for last year’s Budget, would have raised significantly in excess of £10 million. Accordingly, if the objective remains one of raising approximately £10 million from taxpayers with higher disposable incomes, this objective can be achieved by more closely targeting those at the higher end of the income spectrum.

Concerns have also been expressed by taxpayers about the loss of certain allowances and reliefs to which they had been accustomed and which they had taken into account in their financial planning.

In the light of those concerns, and the higher yield, it is now proposed that the earlier proposals for raising more tax from those on higher incomes are amended in the following manner:

· Tax relief for children, including those in higher education, will be retained for all taxpayers.

· Relief will continue to be available on the first £1,000 of life assurance premia on all policies in existence as at 31st December, 2006.

· Tax exemption thresholds for all taxpayers will be increased by 2.5% per annum in the December 2006 Budget, with similar proposals in 2007 and 2008. These will affect the years of assessment 2007, 2008 and 2009 respectively. Appendix A details the proposed new exemption limits.

Retaining tax relief for children will ensure that all taxpaying families will continue to receive allowances in respect of their children. Furthermore, bearing in mind the growing cost of higher education, tax relief will be continued to be provided for all families with children following approved courses at university or colleges of further education..

Retaining relief on the first £1,000 of life assurance premiums recognises the commitments that individuals may have entered into in advance of the move to 20 means 20.

The biggest change to the original proposals, however, is to combine the introduction of the phasing out of allowances with a commitment to increase exemption thresholds for all taxpayers by 2.5% a year in 2007, 2008 and 2009. Raising exemption thresholds will remove a significant number of households entirely from the payment of tax and benefit those on so called “middle incomes”. Generally, this effect will be to reduce the impact of 20 means 20 on “middle incomes”. Many previously affected by the proposals will now find no change in their tax bills and, in certain circumstances, the raising of exemption limits will result in tax bills actually reducing.

Examples of the effect of the revised proposals, once fully in place, are as follows:-

· A married man, wife not working with no children and no mortgage, earning £40,000, will benefit from a tax cut of £367 compared to his current 2005 tax bill

· A married man, wife working, one child at school and one child at university with a mortgage of £240,000, earning £70,000, will receive a tax cut of £251 compared to his current 2005 tax bill, rather than a tax increase of £116 under the former proposals

· A married couple, earning £100,000, wife working, two children at school, with a mortgage of £360,000 capped at £300,000 for qualifying tax relief, will pay additional tax of £1,801 under these revised proposals rather than £2,168 under the former proposals

· A single person earning £30,000 with one child at school and a mortgage of £120,000, will receive a tax cut of £230 compared to his current 2005 tax bill

Numerous additional examples are contained in Appendix B.[1]

In addition it is proposed that the phasing out of allowances for higher earners will take place over a five year period commencing 2007, so for many the full impact will not be felt until 2011.

Distribution of Tax Burden Following Phasing Out of Allowances for Higher Earners

It is proposed to retain the current system of generous exemptions which benefit those on lower and middle incomes. As a result of this, based on current data, once the proposed changes to the income tax system are fully implemented the majority of people in Jersey will either be unaffected by the proposals or receive a tax cut:

 Approximately 28% of households will not pay any income tax;

 45% of households will benefit from the increase in exemption limits;

 20% of households will pay more tax than currently but not experience the full effect of the changes; and

 6% of households will experience the full effect of the phasing out of allowances.

As a result of these revised proposals for phasing out allowances for higher earners only those households in the top quarter of incomes will experience an increase in their tax bills and only the top 6% will experience the full impact of the phasing out of allowances. These changes are truly targeted at higher earners and do not hit those on “middle incomes”.

Furthermore, under no circumstances can any household pay more than 20% of its income in tax.

Conclusion

There has been extensive consultation on the 20 means 20 proposals to which the Minister has listened and this has been reflected in the revised proposals.

The revised proposals meet the States criteria of ensuring the overall fiscal strategy is progressive by raising at least £10m from higher earners. Approximately, three quarters of households will pay no tax, or less tax under these proposals and only one in seventeen households will pay at, or just under, the full rate of 20% of their incomes in tax.

Date: 19th May 2006

APPENDIX A

Increase in exemption thresholds by 2.5% in each of the years 2007, 2008 and 2009.

Single Person

Current exemption threshold = £11,020

2007 = £11,300

2008 = £11,580

2009 = £11,870

Married Person

Current exemption threshold = £17,680

2007 = £18,130

2008 = £18,580

2009 = £19,040

Single person over 63 years of age

Current exemption threshold = £12,300

2007 = £12,610

2008 = £12,930

2009 = £13,250

Married person over 63 years of age

Current exemption threshold = £20,250

2007 = £20,760

2008 = £21,280

2009 = £21,810

Appendix B

Description of Household

Household income

Tax payable in 2005

Tax payable in 2012 (New proposals)

Tax increase or decrease (New proposals)

Tax payable in 2012 (Old proposals)

Tax decrease. (Old proposals versus new proposals)

Single, no children, no mortgage

£12,000

£265

£35

-£230

£265

£230

Single, no children, no mortgage

£20,000

£2,425

£2,195

-£230

£2,425

£230

Single, no children, no mortgage

£30,000

£4,800

£4,895

£95

£5,125

£230

Single, no children, mortgage £120,000

£30,000

£3,407

£3,178

-£230

£3,407

£230

Single, 1 child at school, mortgage £120,000

£30,000

£1,517

£1,288

-£230

£1,517

£230

Single, 1 child at school, no mortgage

£30,000

£3,235

£3,005

-£230

£3,235

£230

Single, no children, mortgage £120,000

£40,000

£5,528

£5,878

£350

£6,107

£230

Single, 1 child at school, mortgage £120,000

£40,000

£4,128

£3,988

-£140

£4,217

£230

Single, 1 child at school, no mortgage

£40,000

£5,400

£5,705

£305

£5,935

£230

Single, no children, mortgage £200,000

£50,000

£6,680

£7,433

£753

£7,663

£230

Single, 1 child at school, mortgage £200,000

£50,000

£5,280

£5,543

£263

£5,773

£230

Single, 1 child at school, no mortgage

£50,000

£7,400

£8,405

£1,005

£8,635

£230

Single, no children, no mortgage

£60,000

£10,800

£12,000

£1,200

£12,000

£0

Single, no children, mortgage £240,000

£60,000

£8,256

£9,561

£1,305

£9,790

£230

Single, 1 child at school, mortgage £240,000

£60,000

£6,856

£7,671

£815

£7,900

£230

Single, 1 child at school, no mortgage

£60,000

£9,400

£10,600

£1,200

£11,335

£735

Single, no children, no mortgage

£70,000

£12,800

£14,000

£1,200

£14,000

£0

Single, no children, mortgage £240,000

£70,000

£10,256

£12,261

£2,005

£12,490

£230

Single, 1 child at school, mortgage £240,000

£70,000

£8,856

£10,371

£1,515

£10,600

£230

Single, 1 child at school, no mortgage

£70,000

£11,400

£12,600

£1,200

£14,000

£1,400

Single, no children, no mortgage

£80,000

£14,800

£16,000

£1,200

£16,000

£0

Single, no children, mortgage £240,000

£80,000

£12,256

£14,961

£2,705

£15,190

£230

Single, 1 child at school, mortgage £240,000

£80,000

£10,856

£13,071

£2,215

£13,300

£230

Single, 1 child at school, no mortgage

£80,000

£13,400

£14,600

£1,200

£16,000

£1,400

Single, no children, no mortgage

£90,000

£16,800

£18,000

£1,200

£18,000

£0

Single, no children, mortgage £240,000

£90,000

£14,256

£17,661

£3,405

£17,890

£230

Single, 1 child at school, mortgage £240,000

£90,000

£12,856

£15,771

£2,915

£16,000

£230

Single, 1 child at school, no mortgage

£90,000

£15,400

£16,600

£1,200

£18,000

£1,400

Single, no children, no mortgage

£100,000

£18,800

£20,000

£1,200

£20,000

£0

Single, no children, mortgage £240,000

£100,000

£16,256

£20,000

£3,744

£20,000

£0

Single, 1 child at school, mortgage £240,000

£100,000

£14,856

£18,471

£3,615

£18,700

£230

Single, 1 child at school, no mortgage

£100,000

£17,400

£18,600

£1,200

£20,000

£1,400

Single, no children, no mortgage

£110,000

£20,800

£22,000

£1,200

£22,000

£0

Single, no children, mortgage £240,000

£110,000

£18,256

£22,000

£3,744

£22,000

£0

Single, 1 child at school, mortgage £240,000

£110,000

£16,856

£20,600

£3,744

£21,400

£800

Single, 1 child at school, no mortgage

£110,000

£19,400

£20,600

£1,200

£22,000

£1,400

Single, no children, mortgage £300,000

£115,000

£18,620

£23,000

£4,380

£23,000

£0

Single, no children, no mortgage

£115,000

£21,800

£23,000

£1,200

£23,000

£0

Single, no children, no mortgage

£120,000

£22,800

£24,000

£1,200

£24,000

£0

Single, no children, mortgage £240,000

£120,000

£20,256

£24,000

£3,744

£24,000

£0

Single, 1 child at school, mortgage £240,000

£120,000

£18,856

£22,600

£3,744

£24,000

£1,400

Single, 1 child at school, no mortgage

£120,000

£21,400

£22,600

£1,200

£24,000

£1,400

Single, no children, no mortgage

£130,000

£24,800

£26,000

£1,200

£26,000

£0

Single, no children, mortgage £240,000

£130,000

£22,256

£26,000

£3,744

£26,000

£0

Single, 1 child at school, mortgage £240,000

£130,000

£20,856

£24,600

£3,744

£26,000

£1,400

Single, 1 child at school, no mortgage

£130,000

£23,400

£24,600

£1,200

£26,000

£1,400

Married, wife working, no children, no mortgage

£20,000

£0

Married, wife not working, no children, no mortgage

£20,000

£626

£259

-£367

£626

£367

Married, wife working, no children, no mortgage

£30,000

£2,111

£1,744

-£367

£2,111

£367

Married, wife not working, no children, no mortgage

£30,000

£3,326

£2,959

-£367

£3,326

£367

Married, wife not working, 1 child age 3, no mortgage

£30,000

£2,651

£2,284

-£367

£2,651

£367

Married, wife working, no children, no mortgage

£40,000

£4,811

£4,444

-£367

£4,811

£367

Married, wife not working, no children, no mortgage

£40,000

£6,026

£5,659

-£367

£6,026

£367

Married, wife not working, 1 child age 3, no mortgage

£40,000

£5,351

£4,984

-£367

£5,351

£367

Married, wife not working, 1 child age 3, mortgage £160,000

£40,000

£3,062

£2,695

-£367

£3,062

£367

Married, wife working, no children, no mortgage

£50,000

£7,380

£7,144

-£236

£7,511

£367

Married, wife working, no children, mortgage £200,000

£50,000

£4,649

£4,282

-£367

£4,649

£367

Married, wife working, 2 children at school, mortgage £200,000

£50,000

£3,299

£2,932

-£367

£3,299

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £200,000

£50,000

£2,624

£2,257

-£367

£2,624

£367

Married, wife working, 2 children at school, no mortgage

£50,000

£6,161

£5,794

-£367

£6,161

£367

Married, wife working, no children, no mortgage

£60,000

£9,380

£9,844

£464

£10,211

£367

Married, wife working, no children, mortgage £240,000

£60,000

£6,777

£6,410

-£367

£6,777

£367

Married, wife working, 2 children at school, mortgage £240,000

£60,000

£5,427

£5,060

-£367

£5,427

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £240,000

£60,000

£4,752

£4,385

-£367

£4,752

£367

Married, wife working, 2 children at school, no mortgage

£60,000

£8,380

£8,494

£114

£8,861

£367

Married, wife working, no children, no mortgage

£70,000

£11,380

£12,544

£1,164

£12,911

£367

Married, wife working, no children, mortgage £240,000

£70,000

£8,836

£9,110

£274

£9,477

£367

Married, wife working, 2 children at school, mortgage £240,000

£70,000

£7,836

£7,760

-£76

£8,127

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £240,000

£70,000

£7,336

£7,085

-£251

£7,452

£367

Married, wife working, 2 children at school, no mortgage

£70,000

£10,380

£11,194

£814

£11,561

£367

Married, wife working, no children, no mortgage

£80,000

£13,380

£15,244

£1,864

£15,611

£367

Married, wife working, no children, mortgage £300,000

£80,000

£10,200

£10,951

£751

£11,318

£367

Married, wife working, 2 children at school, mortgage £300,000

£80,000

£9,200

£9,601

£401

£9,968

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £300,000

£80,000

£8,700

£8,926

£226

£9,293

£367

Married, wife working, 2 children at school, no mortgage

£80,000

£12,380

£13,894

£1,514

£14,261

£367

Married, wife working, no children, no mortgage

£85,000

£14,380

£16,594

£2,214

£16,961

£367

Married, wife not working, 2 children at school, no mortgage

£85,000

£14,280

£16,000

£1,720

£16,826

£826

Married, wife working, 2 children at school, no mortgage

£85,000

£13,380

£15,244

£1,864

£15,611

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £340,000 (capped at £300,000)

£85,000

£9,700

£10,276

£576

£10,643

£367

Married, wife working, no children, mortgage £340,000 (capped at £300,000)

£85,000

£11,200

£12,301

£1,101

£12,668

£367

Married, wife working, 2 children at school, mortgage £340,000 (capped at £300,000)

£85,000

£10,200

£10,951

£751

£11,318

£367

Married, wife working, no children, no mortgage

£90,000

£15,380

£17,944

£2,564

£18,000

£56

Married, wife working, no children, mortgage £360,000 (capped at £300,000)

£90,000

£12,200

£13,651

£1,451

£14,018

£367

Married, wife working, 2 children at school, mortgage £360,000 (capped at £300,000)

£90,000

£11,200

£12,301

£1,101

£12,668

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £360,000 (capped at £300,000)

£90,000

£10,700

£11,626

£926

£11,993

£367

Married, wife working, 2 children at school, no mortgage

£90,000

£14,380

£16,594

£2,214

£16,961

£367

Married, wife working, no children, no mortgage

£100,000

£17,380

£20,000

£2,620

£20,000

£0

Married, wife working, no children, mortgage £360,000 (capped at £300,000)

£100,000

£14,200

£16,351

£2,151

£16,718

£367

Married, wife working, 2 children at school, mortgage £360,000 (capped at £300,000)

£100,000

£13,200

£15,001

£1,801

£15,368

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £360,000 (capped at £300,000)

£100,000

£12,700

£14,326

£1,626

£14,693

£367

Married, wife working, 2 children at school, no mortgage

£100,000

£16,380

£19,000

£2,620

£19,661

£661

Married, wife working, no children, no mortgage

£110,000

£19,380

£22,000

£2,620

£22,000

£0

Married, wife working, no children, mortgage £360,000 (capped at £300,000)

£110,000

£16,200

£19,051

£2,851

£19,418

£367

Married, wife working, 2 children at school, mortgage £360,000 (capped at £300,000)

£110,000

£15,200

£17,701

£2,501

£18,068

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £360,000 (capped at £300,000)

£110,000

£14,700

£17,026

£2,326

£17,393

£367

Married, wife working, 2 children at school, no mortgage

£110,000

£18,380

£21,000

£2,620

£22,000

£1,000

Married, wife working, no children, no mortgage

£120,000

£21,380

£24,000

£2,620

£24,000

£0

Married, wife working, no children, mortgage £360,000 (capped at £300,000)

£120,000

£18,200

£21,751

£3,551

£22,118

£367

Married, wife working, 2 children at school, mortgage £360,000 (capped at £300,000)

£120,000

£17,200

£20,401

£3,201

£20,768

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £360,000 (capped at £300,000)

£120,000

£16,700

£19,726

£3,026

£20,093

£367

Married, wife working, 2 children at school, no mortgage

£120,000

£20,380

£23,000

£2,620

£24,000

£1,000

Married, wife working, no children, no mortgage

£130,000

£23,380

£26,000

£2,620

£26,000

£0

Married, wife working, no children, mortgage £360,000 (capped at £300,000)

£130,000

£20,200

£24,451

£4,251

£24,818

£367

Married, wife working, 2 children at school, mortgage £360,000 (capped at £300,000)

£130,000

£19,200

£23,101

£3,901

£23,468

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £360,000 (capped at £300,000)

£130,000

£18,700

£22,426

£3,726

£22,793

£367

Married, wife working, 2 children at school, no mortgage

£130,000

£22,380

£25,000

£2,620

£26,000

£1,000

Married, wife working, no children, no mortgage

£140,000

£25,380

£28,000

£2,620

£28,000

£0

Married, wife working, no children, mortgage £400,000 (capped at £300,000)

£140,000

£22,200

£27,151

£4,951

£27,518

£367

Married, wife working, 2 children at school, mortgage £400,000 (capped at £300,000)

£140,000

£21,200

£25,801

£4,601

£26,168

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £400,000 (capped at £300,000)

£140,000

£20,700

£25,126

£4,426

£25,493

£367

Married, wife working, 2 children at school, no mortgage

£140,000

£24,380

£27,000

£2,620

£28,000

£1,000

Married, wife working, no children, no mortgage

£150,000

£27,380

£30,000

£2,620

£30,000

£0

Married, wife working, no children, mortgage £400,000 (capped at £300,000)

£150,000

£24,200

£29,851

£5,651

£30,000

£149

Married, wife working, 2 children at school, mortgage £400,000 (capped at £300,000)

£150,000

£23,200

£28,501

£5,301

£28,868

£367

Married, wife working, 1 child at school, 1 child at university, mortgage £400,000 (capped at £300,000)

£150,000

£22,700

£27,826

£5,126

£28,193

£367

Married, wife working, 2 children at school, no mortgage

£150,000

£26,380

£29,000

£2,620

£30,000

£1,000

Married, wife working, no children, no mortgage

£160,000

£29,380

£32,000

£2,620

£32,000

£0

Married, wife working, no children, mortgage £400,000 (capped at £300,000)

£160,000

£26,200

£32,000

£5,800

£32,000

£0

Married, wife working, 2 children at school, mortgage £400,000 (capped at £300,000)

£160,000

£25,200

£31,000

£5,800

£31,568

£568

Married, wife working, 1 child at school, 1 child at university, mortgage £400,000 (capped at £300,000)

£160,000

£24,700

£30,500

£5,800

£30,893

£393

Married, wife working, 2 children at school, no mortgage

£160,000

£28,380

£31,000

£2,620

£32,000

£1,000

Married, wife working, no children, no mortgage

£170,000

£31,380

£34,000

£2,620

£34,000

£0

Married, wife working, no children, mortgage £400,000 (capped at £300,000)

£170,000

£28,200

£34,000

£5,800

£34,000

£0

Married, wife working, 2 children at school, mortgage £400,000 (capped at £300,000)

£170,000

£27,200

£33,000

£5,800

£34,000

£1,000

Married, wife working, 1 child at school, 1 child at university, mortgage £400,000 (capped at £300,000)

£170,000

£26,700

£32,500

£5,800

£33,593

£1,093

Married, wife working, 2 children at school, no mortgage

£170,000

£30,380

£33,000

£2,620

£34,000

£1,000

Married, wife working, no children, no mortgage

£180,000

£33,380

£36,000

£2,620

£36,000

£0

Married, wife working, no children, mortgage £400,000 (capped at £300,000)

£180,000

£30,200

£36,000

£5,800

£36,000

£0

Married, wife working, 2 children at school, mortgage £400,000 (capped at £300,000)

£180,000

£29,200

£35,000

£5,800

£36,000

£1,000

Married, wife working, 1 child at school, 1 child at university, mortgage £400,000 (capped at £300,000)

£180,000

£28,700

£34,500

£5,800

£36,000

£1,500

Married, wife working, 2 children at school, no mortgage

£180,000

£32,380

£35,000

£2,620

£36,000

£1,000

Single, no children, mortgage £120,000, Life Assurance Premiums £1000

£30,000

£3,407

£3,178

-£230

£3,407

£230

Single, 1 child at school, mortgage £240,000, Life Assurance Premiums £1000

£60,000

£6,656

£7,671

£1,015

£7,900

£230

Single, no children, mortgage £240,000, Life Assurance Premiums £5000

£90,000

£13,256

£17,661

£4,405

£17,890

£230

Married, wife working, 2 children at school, mortgage £200,000, Life Assurance Premiums £1000

£50,000

£3,299

£2,932

-£367

£3,299

£367

Married, wife working, no children, mortgage £360,000 (capped at £300,000), Life Assurance Premiums £5000

£90,000

£11,200

£13,651

£2,451

£14,018

£367

Married, wife working, 2 children at school, mortgage £360,000 (capped at £300,000), Life Assurance Premiums £5000

£90,000

£10,200

£12,301

£2,101

£12,668

£367

Married, wife working, 2 children at school, mortgage £400,000 (capped at £300,000), Life Assurance Premiums £10,000

£170,000

£25,200

£32,800

£7,600

£34,000

£1,200

Single OAP (63 for the whole year)

£12,000

£0

Single OAP (63 for the whole year)

£20,000

£2,079

£1,823

-£257

£2,079

£257

Single OAP (63 for the whole year)

£35,000

£5,800

£5,873

£73

£6,129

£257

Married OAP (63 for the whole year)

£20,000

£0

Married OAP (63 for the whole year), wife has pension by virtue of her own contributions

£30,000

£1,418

£996

-£421

£1,418

£421

Married OAP (63 for the whole year), wife has pension by virtue of her own contributions

£45,000

£5,468

£5,046

-£421

£5,468

£421

Notes: Where single parent assumes additional personal allowance is due. Where wife working assumes income over £4500.

Where child allowance given assumes any income in the child's own right does not exceed £2500.

Allowable Mortgage interest calculated at 5.3%.

All OAP calculations assume no children and no mortgage.

Income Tax personal allowances in Jersey are quite low. The single person's allowance is £2,600 and the married man's allowance is £5,200. Although there is also a tax allowance of one quarter of earned income (earned income allowance up to a maximum of £3,400) this still makes a single person or a married man potentially liable to tax on a comparatively low income.

There are tax exemption thresholds to prevent liability to tax on low incomes. These are as follows.

Single person £11,020

Married person £17,680

Single person over 63 years of age £12,300

Married person over 63 years of age £20,250

These exemption thresholds are increased if the single person or married man is entitled to any of the following allowances or reliefs.

Lower child allowance (child at school) £2,500

Higher child allowance (child in higher education) £5,000

Additional personal allowance (single parent) £4,500

Wife’s earned income allowance (wife working) £4,500 (max)

Child care tax relief £6,150 (max)

Qualifying maintenance payments

Qualifying interest tax relief

Because of these exemption thresholds (increased as appropriate by the above allowances or reliefs) it is only those with high incomes who do not benefit from them.

Lower and middle income earners whose total income is in excess of their exemption threshold fall into what is termed the “marginal band”. The calculation of their liability to tax at the marginal rate of 27% ensures that there is no disproportionate increase in their tax bill if their income exceeds their exemption threshold.

The attached examples show how the marginal rate of 27% is applied to lower and middle income earners.

EXAMPLE ONE

Single Person				Single Person
Calculation at 20% rate				Calculation at 27% marginal rate
Earnings			£12,000	Earnings	£12,000
Less:	Personal allowance	£2,600		Less Exemption threshold	£11,020
Earned income allowance		£3,000
(1/4 x £12,000)
			£ 5,600
Taxable income =			£ 6,400	Excess = £ 980

Tax payable £6,400 x 20% = £1,280				Tax payable £980 x 27% = £265

The amount of tax due is the lower of the two calculations = £265

EXAMPLE TWO

Married Man				Married Man
Calculation at 20% rate				Calculation at 27% marginal rate
Earnings			£21,000	Earnings	£21,000
Less	Personal allowance Earned income allowance (max) Child allowance (1 child) Life Insurance relief Taxable income = Tax payable £9,400 x 20% = £1,880	£5,200 £3,400 £2,500 £ 500	£11,600 £ 9,400	Less: Exemption Limit Excess = Tax payable £820 x 27% = £221	£20,180 £ 820
					[1] Appendix C is included to explain the 27% marginal rate and its inter-action with the 20% rate and why the 27% rate exists.