A tax cut for lower and higher earners: Osborne hikes personal allowance again and bumps 40p tax threshold

Delivering another jump in the personal allowance, George Osborne said that from 6 April 2017, the start of the 2017/18 tax year, individuals will be able to earn £11,500 before they start to pay tax.

And in a boost for higher earners, he also increased the threshold at which 40 per cent income tax kicks in to £45,000 – this was the biggest giveaway to 40p taxpayers since the rate’s introduction nearly 30 years ago.

The move represents a further step in the plan to raise the personal allowance all the way up to £12,500 and Mr Osborne claimed today’s rise would provide a tax cut for 31million people.

It is also a step towards rewarding higher earners who have suffered years of fiscal drag as the failure to raise the 40p tax threshold in line with wages has pulled millions more into the tax bracket.

The increase in the personal allowance to £11,500 is an improvement of £300 compared to the £11,200 that was originally planned to come into effect on 6 April 2017.

It’s also £500 more than the £11,000 allowance that comes into force next month, on 6 April 2016, and £900 more than the £10,600 allowance that applies for the remainder of this tax year.

Today’s announcement was part of the Tories’ manifesto commitment to raise the personal allowance to £12,500 by the end of parliament in 2020.

George Osborne has raised further the personal allowance – to £11,500 – and the 40p rate to £45,000 in today’s Budget handing tax cuts to more than 30 million workers

The Treasury said today’s rise in the personal allowance ‘continues to ensure that no-one working 30 hours per week on the National Minimum Wage will pay income tax in 2017/18, and will bring the total number of taxpayers taken out of income tax since the start of this parliament to 1.3 million.

‘As a result, a typical basic-rate taxpayer will pay over £1,000 less income tax in 2017/18 than in 2010/11.’
The hike in the threshold at which individuals have to pay the high rate 40 per cent tax to £45,000 is £2,000 more generous than the £43,000 that comes into effect on 6 April 2016 and £1,400 than it was originally due to rise to in April 2017 – as previously announced in November’s Autumn Statement.

In the current tax year, individuals start paying 40 per cent tax when they earn £42,385.

The Treasury said the move to the £45,000 threshold ‘will be the biggest above-inflation cash increase to this threshold since it was introduced by Lord Lawson in 1989.

‘This delivers the Government’s ambition to reverse the trend whereby an increasing number of individuals are faced with paying the higher rate. In 2017/18, there will be 585,000 fewer higher rate taxpayers than at the start of the parliament.’