Personal Finance: Stand by to feel rotten

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THE NEW tax codes arriving through letter-boxes have been a long time coming.

The biggest impact can be traced back to Norman Lamont's last Budget nearly a year ago.

Setting aside the 1 per cent rise in National Insurance, it is the squeeze on the married couple's allowance, company car tax and mortgage tax relief that will dent take-home pay.

It was Mr Lamont who decreed that the married couple's allowance, and also the single parent and widow's allowance, would be restricted to 20 per cent tax relief.

For employees this change will be operated through the tax code. So while 20 per cent taxpayers will see pounds 1,720 on their code to produce an extra pounds 344.25 in their income, basic 25 per cent payers will get a pounds 1,376 allowance, and 40 per cent payers an pounds 860 allowance, to give the same cash benefit.

The Inland Revenue has produced a fact sheet to try to unravel the arithmetic and was prepared for the huge increase in calls that followed the new codings.

Mortgage interest relief has been squeezed on two fronts. The lower interest rates mean a smaller tax relief, and the relief is being squeezed down from 25 to 20 per cent. This will cost someone with a mortgage of pounds 30,000 or more about pounds 10 a month.

Company car tax moves away from the cc bands to a system based on the price of the car. Employees have been slow to trade in company cars for extra pay or cash, but the new coding might just provide the spur to consider handing in the keys - on the right terms.

The feel-rotten factor will be all around in April. The pressure for a further rate cut to soften the blow of the first pay packet under the new tax regime will be strong.

ONE INSURANCE company, Aegon Life, is already using an effective lie detector test on people claiming to be non-smokers when they apply for life insurance.

There is every incentive to claim to be a non-smoker as the premium rates are much lower. Smokers fall ill much more often and they die from a whole variety of illnesses at a much faster rate than non-smokers. Smokers aged 46 to 60 are 80 per cent more likely to die than non-smokers.

The old principle of insurance covering a mass of people, who share the costs of caring for the few who fall, breaks down pretty quickly when an easily identifiable group seems to be making more than its fair share of the claims.

Medical tests are moving apace. Aids tests can detect the creeping HIV virus, and now we are threatened with tests to detect genetic markers that can show a predisposition to illnesses such as breast cancer.

The moral dilemma of forcing people to confront the fact that the dice are loaded against them while they still have no clinical disease is yet to be faced. But smoking, where people have the choice not to smoke, is a different matter.

When it comes to smokers, a test for traces of cototine in the urine can soon weed out the liars, according to a report in Planned Savings magazine.

Non-smokers should see their life insurance rates fall as the cheats are exposed, while smokers will pay the full price of their habit in cash as well as their tattered health.