Chancellor Philip Hammond has announced an increase in the personal allowance and higher rate tax band.
Chancellor Philip Hammond has announced an increase in the personal allowance and higher rate tax band, while the national living wage and minimum wage will also rise in the next tax year.
From April 2018 the personal allowance – the amount a worker can earn before paying income tax - will increase to £11,850 from its current level of £11,500.
The higher rate 40p tax threshold will also be increased to £46,350 from its current threshold of £45,001, Mr Hammond announced in his Budget statement.
No change to the additional 45p tax band was announced. This currently applies to all taxable income over £150,000.
These income tax bands apply to England, Northern Ireland and Wales only. Any changes to Scottish income tax will be announced in the Scottish Budget on 14 December 2017, the current tax rates in Scotland can be found on the government's website.
Kate Smith, head of pensions at Aegon, says: ‘Increasing the higher rate tax threshold to £46,350 means more people should pay less income tax from next April. Some will move out of the higher rate tax bracket and become basic rate tax payers.
‘This affects pension saving as individuals receive tax relief, or a government top-up, on their own contributions, based on their highest marginal income tax rate of 20 per cent, 40 per cent or 45 per cent. Moving more people into the basic rate tax bracket means the government top-up is halved.’
The Chancellor announced no changes to the national insurance system in today’s statement. This follows his U-turn after the spring Budget statement, where he was forced to cancel a proposed increase for self-employed workers.
Boost for low-paid workers
The national living wage – the legal minimum wage for over 25s - will be set at £7.83 per hour from next April. This is higher than the current £7.50 national living wage and is expected to deliver a wage increase for two million people.
Mr Hammond also announced an increase in the national minimum wage – applied to under 25s.
From April 21- to 24-year-olds will see the minimum wage increased from £7.38 per hour from the current £7.05 rate, an inflation-busting 4.68 per cent rise.
Additionally, 18- to 20-year-olds will receive a 30p boost to £5.90 per hour and for 16- and 17-year-olds the minimum will rise by 15p to £4.20 per hour.
Finally, the minimum wage for apprentices will increase by 20p to £3.70 per hour.
But despite the increases, the minimum wage levels set by the government remain well below the real living wage established by the Living Wage Foundation.
It says employees must earn at least £8.75 an hour to achieve an acceptable standard of living, rising to £10.20 an hour in London.
The charity says about 3,600 firms have signed up to pay this wage voluntarily, covering more than 150,000 workers. The real living wage applies to workers of all ages, rather than being tiered.
Subscribe to Money Observer Magazine
Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.Subscribe now