Personal allowance to rise more than expected

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From April 2013, the personal tax allowance will rise by a further £235 on top of the already announced increase of £1,100, Chancellor George Osborne announced on Wednesday.

That means a total increase of £1,335 - the equivalent of £267 more in your pocket each year and the highest cash rise ever.

In total, from the next tax year workers will be able to earn £9,440 before paying any income tax, up from the current limit of £8,105 (2012/2013).

Osborne said: "This is a direct boost to the incomes of people working hard to provide for their families.

"People working full-time on the minimum wage, will have seen their income tax bill cut in half.

"And we are within touching distance of the £10,000 personal allowance."

He adds: "And this time, I propose to extend the benefits of this further increase to higher-rate taxpayers."

The Chancellor's Autumn Statement also revealed that the higher-rate income tax threshold would rise by 1% in 2014/2015 and 2015/2016.

You currently have to earn £41,450 (on top of your personal allowance) before you have to start paying 40% income tax on anything you earn above that amount. But with the changes, this will rise to £41,865 in 2014/2015 and then to £42,285 in 2015/2016.

But while it is an increase, it fails to keep up with the rate of inflation - currently at 2.7% (consumer prices index), meaning that in real terms the increase will not be able to keep up with rising living costs.

Osborne admitted this was the case: "I want to be completely clear with people. This is an increase; in fact, it is the first cash increase in the higher-rate threshold in this Parliament.

"But it is not an increase in line with inflation, and so it raises £1 billion of revenue by 2015/16."

He adds: "Again, there are no easy ways to reduce the deficit - but from year to year, no one will pay a penny more in income tax."