Background Note
5.This change reflects the Government’s intention to move the underlying indexation assumption for direct taxes to the CPI.
6.Income tax personal allowances, the basic rate limit, the starting rate limit for savings and the adjusted net income limit are increased each year by the annual percentage increase in the RPI (“indexation”). This section will change the basis of indexation from the RPI to the CPI.
7.Section 21 of the Income Tax Act 2007 (ITA) applies where the RPI for the September before the start of the tax year is higher than it was for the previous tax year. Where section 21 applies, the amount of the basic rate limit and the starting rate limit for savings are increased by the annual percentage increase in the RPI (subject to rounding).
8.Section 57 of ITA applies where the RPI for the September before the start of the tax year is higher than it was for the previous September. Where section 57 applies, the amount of the personal allowance for people born after 5 April 1948; the married couple’s allowance; the minimum amount of married couple’s allowance; the income limit that applies to the higher personal allowances and the married couple’s allowance; and the blind person’s allowance are increased by the annual percentage increase in the RPI (subject to rounding).
9.Where sections 21 and 57 apply, the increased amounts must be set in a Treasury Order before the start of the tax year.
10.The changes made by this section mean that, with effect from the tax year 2015-16, the calculations made under section 21 and 57 will be made by reference to the percentage increase in the CPI rather than the percentage increase in the RPI.
