The chancellor, Alastair Darling has announced a £600 increase in the previously budgetted 2008/09 personal allowance as a “compensation package” for lower earners affected by the abolition of the 10% band for earned and pension income. This measure also reduces the higher rate threshold to compensate and so higher rate tax paying earners do not also receive the £120 windfall, which applies for this tax year only.
The effect of the change for a basic rate taxpayer on £25,000 p.a. is as follows:
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