Personal allowance and 40p threshold to rise for two years
THE PERSONAL allowance for income tax will rise to £10,500 from 2015-16, as the threshold for the 40 per cent rate starts to climb.
The tax-free slab has risen in each of the coalition’s Budgets, and chancellor George Osborne yesterday confirmed that it will be increased from the current £9,440 this financial year to £10,000 from April, and to £10,500 from April 2015. The threshold for the 40 per cent higher rate of tax has previously fallen, but will now begin to climb again. Anyone earning over £41,450 currently pays the rate, but it will not kick in until earnings of £41,865 from April. In 2015, the threshold will increase again, rising to £42,285, largely due to the personal allowance increase.
But Alison Hill, PwC tax director said: “The personal allowance will increase by £560 on 6 April this year, however the higher rate tax threshold has only been increased by £415. Therefore there is still an actual reduction in the basic rate tax band of £145. Not as generous as it might have seemed.”
The 40 per cent rate has recently become an issue of political contention, with several business groups calling for either a reduction in the rate or an increase in the threshold.
THREE KEY NUMBERS FROM THE PERSONAL TAX CHANGES
1 TAX ALLOWANCE
The personal allowance before income tax is paid will be hiked to £10,500 in 2015.
2 40% THRESHOLD UP
The threshold for the higher rate of tax will be raised to £41,865 this year, and again in 2015.
3 BASIC BAND SHRINKS
The personal allowance increase hides a smaller basic tax band, which will be £145 smaller.