The personal allowance will rise to £12,500 from April 2019, chancellor Philip Hammond has announced in today’s Budget.
This means a basic-rate taxpayer will pay £1,205 less tax in 2019-20 than in 2010-11.
The higher rate tax threshold will also increase to £50,000 in April 2019, a year before expected. It was announced 1m fewer people will pay the higher rate than in 2015/16.
“I didn’t come into politics to put taxes up,” Hammond said. “Austerity is coming to an end but discipline will remain.”
The rate will be maintained in 2020, and not increased, meaning the reforms are “not quite as generous” at they initially seem, according to Canada Life pensions technical director Andrew Tully.
Tully says: “This change will take about half a million people out of income tax in 2019/20. A basic rate taxpayer will have an average gain of £66, while a higher rate taxpayer will have an average gain of £387. All taxpayers with income of £125,000 or above have their personal allowance tapered to zero so won’t benefit.
“The change is perhaps not quite as generous as it first appears as these thresholds will be frozen in 2020/21 before starting to rise in line with inflation from April 2021.”
The personal allowance currently stands at £11,850 with the basic rate between £11,851 and £46,350, while the higher rate is £46,351 with the additional rate (45 per cent) applying from £150,000.
Additionally, a new tax has been created targeting fund manager favourite tech giants.
The UK’s digital services tax will be to target specific digital platform models, not start-ups and “will only be paid by companies which are profitable and generate at least £500m in global revenues a year,” Hammond confirmed.
The tax will come into force in April 2020 but the government will continue to seek a globally agreed solution, and if one emerges will replace the digital services tax.
It is expected to raise more than £400m a year, the chancellor says.