People will be able earn up to £10,500 tax free from April 2015, an increase of £500 in the personal allowance, Chancellor George Osborne said today in his Budget.
This will be worth £100 to a typical basic or higher-rate taxpayer and will lead to a further 288,000 individuals no longer paying income tax, the Treasury said.
Around 25 million people will be better off by an average of £50 from the increased allowance, the Treasury also said. By April 2015, more than 3.2 million people will have been lifted out of income tax.
The government also announced that the transferable tax allowance for married couples and civil partners announced in the Autumn Statement 2013 will be 10% of the personal allowance from 2015-16. It will be £1,050 in 2015-16.
Those hoping for a big increase to the threshold for the 40p higher rate of income were disappointed. It will rise from £41,450 to £41,865 in April, and by another 1% to £42,285 in 2015.
Before the Budget, the government was criticised for not raising the 40p income tax threshold in line with inflation, meaning more people are paying it.
In AccountingWEB's live Budget blog, contributor Nigel Harris dismissed the 1% increase in the higher rate threshold as “pathetic - a missed opportunity to ease tax burden on middle earners”.
The measure triggered up a follow-up debate in Any Answers, as Andrew1211 questioned claims that the £500 increase would save the typical taxpayer £800. The figure was achieved by adding up the cumulative savings since the Coalition government started its allowance reduction programme.
A Budget for savers
For those with savings, there are some significant changes that need to be considered when investing your money. How can you get the best from your investments, what choices do you have and how can you reduce your tax bill?
On the surface the changes announced appear to benefit those with savings already in place and low or zero employment income. For example pensioners who are relying on their savings to top up their pension income. It could also encourage those who are not already saving to start thinking about saving.
A new ISA has been announced, merging the current cash and shares ISAs allowing savers a greater choice regarding how they save and invest. This also sees a large increase in the annual investment limit taking it from £11,520 to £15,000. For those who have only previously invested in cash ISA’s the limit for them has nearly trebled. More than five million people currently reach their cash ISA limit every year and it is believed over six million people will benefit from this increase.
Furthermore for those whose savings take them over the personal allowance, the 10% rate will be abolished from April 2015 and the band of savings income that is subject to the 0% rate will be increased from £2,790 to £5,000. This is predicted to benefit 1.5 million people with an average gain of more than £150 a year. For anyone whose total income does not exceed £15,500 they will no longer pay any tax on their savings income.
At TaxCalc we see a large number of pensioners completing their own tax returns - these changes to savings income will play a vital role in their tax planning for the future.