Marginal tax relief - Updated answer dated 2016.05.06

1240/5(9304)

WRITTEN QUESTION TO THE MINISTER FOR TREASURY AND RESOURCES BY THE DEPUTY OF ST. JOHN

ANSWER TO BE TABLED ON TUESDAY 22nd MARCH 2016

Question

Following changes made to the personal tax system over the last 10 years, could the Minister please provide a statement of:

1. any actual loss of revenue due to allowances within the marginal relief tax system and the dates at which allowances were changed;
2. any actual loss of revenue due to the allowances within the 20-means-20 tax system and the dates at which allowances were changed;
3. any actual loss of revenue due to the change in the marginal rate; and
4. any actual loss of revenue due to changes in stamp duty?

Answer

In the answer to written question 9054 the Deputy was provided with a summary of the changes to the personal income tax system over the last ten years, the relevant table has been reproduced below:

The Deputy has asked the Treasury Minister to provide the "actual loss of revenue" due to the changes identified above in the allowances given within both the marginal rate and the standard rate calculations, together with the actual loss of revenue from the reduction in the marginal rate of tax to 26% in 2014. It is not possible to provide this information on a measure-by-measure basis.

As highlighted above the Budgets approved by the States Assembly usually contain a package of personal income tax measures. In most years the package consists of an increase in the exemption threshold (utilised within the marginal rate calculation) together with changes to the allowances given within marginal rate calculation and/or the standard rate calculation.

The combination of these changes will alter the income level at which each taxpayer swaps from being a marginal rate taxpayer to being a standard rate taxpayer[2]. Therefore to determine the actual loss of revenue from each specific measure would require the Taxes Office to re-run each taxpayer's assessment using unchanged tax allowances and exemption thresholds and then analyse the reasons why any change in tax liability occurs. For those taxpayers who swap from being a marginal rate taxpayer to a standard rate (or vice versa) it could be impossible to identify exactly which measure is changing their tax liability.

The Taxes Office has however been able to supply an indicative overall cost of the changes identified above. Information can be drawn off the Taxes Office's system and entered into a tool in order to give an indication of the total amount of personal income tax which would have been charged for a particular year of assessment if the framework of allowances and relief from another year of assessment were applied. As a consequence of the Deputy 's question the tool has been updated, but it is acknowledged that this tool does not reflect some of the complexities of the personal income tax system (e.g. separate assessments, double tax credits).

The table below has been produced on the following basis:

• Using this tool the framework of allowances and reliefs within the personal income tax system has been applied to the actual income reported by taxpayers for the following year of assessment (i.e. the framework of allowances and reliefs for the 2008 year of assessment has been applied to the income reported for the 2009 year of assessment; the framework of allowances and reliefs for the 2009 year of assessment has been applied to the income reported for the 2010 year of assessment; and so on) and the total amount of income tax payable has been calculated.
• This has been compared to the total amount of income tax payable produced by the tool applying the in year framework of allowances and reliefs to the income. (i.e. the framework of allowances and reliefs for the 2008 year of assessment has been applied to the income reported for the 2008 year of assessment; the framework of allowances and reliefs for the 2009 year of assessment has been applied to the income reported for the 2009 year of assessment; and so on
• The difference between the two figures provides an indicative estimate of the overall financial impact of the changes made in each year.
• The indicative revenue/cost include measures which are phased in over a number of years (i.e. the additional revenue for 2010 of £2.3m arises due to the phasing-out of certain personal allowances under the 20-means-20 policy initiative[3])

An answer to part 4 of the question has previously been submitted.