§ Nor do I propose any change this year to either the basic or higher rate of income tax.
§ Since I aligned the rates of income and capital gains tax in last year's Budget, it follows that I also propose no change this year in the capital gains tax rates. However, I do have a few announcements to make concerning capital gains tax.
§ With the advent of independent taxation from April 1990, married women will acquire their own capital gains tax threshold, so that a married couple will enjoy two such exemptions. In the light of this, I propose to maintain the capital gains tax threshold at £5,000 for 1989–90.
§ Secondly, I propose to abolish the general holdover relief for gifts. This was introduced by my predecessor in 1980, when there was still capital transfer tax on lifetime gifts, in order to avoid a form of double taxation, but the tax on lifetime giving has since been abolished, and the relief is increasingly used as a simple form of tax avoidance. However, while the general holdover relief will 307 go, I propose to retain it for gifts of business, farm and heritage assets; and, of course, gifts between husband and wife will continue to be exempt.
§ Moreover, I propose to extend the existing relief for all gifts to charities and to gifts of land and buildings to housing associations. Where, instead of being given away, the land is sold at less than market value, any capital gains tax will be based on the actual proceeds rather than, as now, on the market value. I also propose that such gifts and concessionary sales be normally exempt from inheritance tax.
§ In the case of gifts of personal belongings, these benefit from chattels relief, under which any items worth less than £3,000 on disposal are entirely exempt from capital gains tax. I propose to double the chattels exemption limit to £6,000.
§ Thirdly, I propose to change the tax treatment of certain bonds so as to simplify the tax rules and prevent a loss of yield by the use of indexation to create losses and the conversion of income into capital gains.
§ To return to income tax, I propose to raise all the main income tax thresholds and allowances by the statutory indexation factor of 6.8 per cent., rounded up. Thus, the single person's allowance will rise by £180 to £2,785, and the married man's allowance will rise by £280 to £4,375. The basic rate limit will rise by £1,400 to £20,700. The single age allowance will rise by £220 to £3,400, and the married age allowance by £350 to £5,385. The higher level of age allowance will rise by £230 to £3,540 for a single person, and by £360 to £5,565 for a married couple.
§ I have a number of measures to help the elderly. In 1987 I introduced a new and more generous age allowance for those aged 80 and over. I now propose to extend it to include all those aged 75 and over. This will take an additional 15,000 elderly single people and married couples out of tax altogether. Three quarters of all those aged 75 and over will not be liable to income tax at all.
§ The income limit for the age allowance will rise by £800 to £11,400, again in line with indexation. However, I propose to reduce the rate at which age allowance is withdrawn above this income limit. I propose that, in future, it should be withdrawn at the rate of £1 of allowance for each £2 of income above the limit, instead of the present rate of £2 for every £3. This means that the marginal tax rate for those in the withdrawal band will be reduced to well below 40 per cent., thus meeting a large number of representations I have received over the past year.
§ The Finance Bill will also include the provisions to establish the new tax relief for the over-60s' health insurance premiums, which I announced to the House in January, and which will take effect from April next year, at a cost of £40 million in 1990–91.
§ I have one further change to make to help pensioners. Under the earnings rule, any pensioner who decides to continue to work after reaching the statutory retirement age sees his or her pension docked at a rate of 50 per cent. on every £1 earned between £75 and £79 a week, rising to 100 per cent. for every £1 earned over £79 a week. This rule applies until he or she has reached five years beyond the state pension age.
§ The manifesto on which we were first elected in 1979 acknowledged that it was wrong to discourage people who wished to work beyond retirement age in this way, and we pledged that we would abolish the earnings rule. That is precisely what we shall do. My right hon. Friend the 308 Secretary of State for Social Security and I have agreed that the pensioners' earnings rule should be abolished from the beginning of October, the earliest practicable date. The necessary legislation will be included in the Social Security Bill currently before the House.
§ The cost to public expenditure will be £190 million in 1989–90, which will be entirely met from the Reserve, but the net cost of this measure will be significantly reduced by the income tax payable on the increased pensions.
§ Those who wish to defer taking their pension will remain entirely free to do so, and will continue to earn a higher pension in return. I am sure the whole House will welcome this long-overdue reform.
§ If I were to adopt the so-called "duck test" now in vogue across the Atlantic, the pensioners' earnings rule would probably qualify as a tax, and I would now be able to claim to have abolished a sixth tax, but sound tax principles, coupled with my innate modesty and natural reticence, prevent me from doing so.