Budget 2018: personal allowance to rise to £12,500 in April 2019

The basic tax-free personal allowance will rise to £12,500 and the higher rate to £50,000 in April next year.

Chancellor Philip Hammond announced he was bringing forward tax cuts a year earlier than planned in today’s Budget.

The basic tax-free personal allowance will rise to £12,500 and the higher rate to £50,000 in April next year.

The change means that taxpayers will be able to earn £12,500 before they have to start paying any income tax at all.

Hammond says: “My idea of ending austerity does not involve increasing people’s tax bills. I didn’t come into politics to put taxes up.”

The Conservative Party had originally pledged to implement the increase by 2020, but the chancellor shifted this forward by one year.

The change will mean an annual tax saving of £130 for basic rate taxpayers, £860 for higher rate taxpayers and £600 for additional rate taxpayers in England and Wales.

Hammond says that the changes will give 32 million people a tax cut. A single parent on universal credit and working 25 hours a week on the national living wage will benefit by an additional £890 next year.

The current tax-free personal tax allowance is £11,850 for the basic rate; above this the income tax rate is 20% until your income hits £46,350.

All money is then taxed at 40% until it reaches £150,000, whereupon you are then taxed at 45%.

However, Deloitte warns that at £2.79 billion for the 2019/20 tax year it will prove a costly move for the chancellor.

Iain McCluskey, personal tax partner at PwC, says the chancellor’s scattering of a “fistful of cheap, light and airy” personal tax measures was more "tinkering than transformational".

He says: “This long-standing policy, a brainchild of the coalition government, has proven more resilient than its original political architects. With wage inflation of 2.7%, it should mean that those with average or better wage growth see the tax bands move with them.”

He adds: “However, the lowest paid taxpayers who earn less than the current personal allowance won’t see any benefit from this rise in these thresholds, and will reflect on whether a rise in the much lower National Insurance Contributions lower earnings limit would have been a better spending choice.”

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