The tax-free personal allowance will rise to £9,205 next April.
The Coalition Agreement commits the Government to raise the allowance to £10,000 by the end of the Parliament, in 2015.
The Chancellor confirmed in this afternoon’s Budget it will rise to £8,105 in April as previously expected, then rise to £9,205 in April 2013. It is expected to move to £10,000 in April 2014.
He said: “The best way to support working families on low incomes is to take them out of tax. Increasing the personal allowance is the best way to put extra money in those families’ pockets.”
The personal allowance is currently £7,475. Only those with salaries under £100,000, 24m people, will receive the full personal allowance which is is phased out between £100,000 and £115,000.
Raising the allowance to £10,000 was a key plank of the Liberal Democrats’ election campaign and leader Nick Clegg has been pushing for the Government to move “further and faster” towards the pledge. In January, he said further progress was needed because the pressure on family finances is “reaching boiling point”.
The Institute for Fiscal Studies estimates the annual cost of introducing the £10,000 personal allowance in 2014 rather than allowing it to rise with inflation to £8,885 in 2015/16, as assumed by the Office for Budget Responsibility, to be £6.5bn. The Guardian reports £1.5bn of the money is coming from a new 7 per cent stamp duty charge on properties over £2m. The Telegraph says another £2bn will come from fresh cuts in Government spending.
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