Tax Credits tidied up

It was a Pre-Budget Report of handbrake u-turns. As well as the change of heart on SIPPs, the Chancellor has also changed the government's tune on tax credits. His decision will benefit thousands of tax credit claimants. Simply put, if you are claiming tax credits, from next year you will not have to inform the taxman of any change in your income unless it rises by more than £25,000.

At a stroke this will slash the administrative burden on the tax credits system. At present claimants should see their credits stop if their incomes rise by just £2,500. However, from April 2006, the disregard for increases in income between one tax year and the next rises ten-fold. The Chancellor claimed in his speech that the new limit would cover 95% of all pay increases currently experienced by claimants.

There was also news of more money for pensioners. Elderly people on Pensions Credit will be given free installation of central heating and other pensioners receive £300 towards the cost. In addition, the Chancellor confirmed that winter fuel payments will continue to be paid for the rest of this Parliament, at £200 for households with someone aged 60 or over, rising to £300 for households with someone aged 80 or over.

Back to Pre-Budget 2005