Government raises personal allowance to £11,850

Government raises personal allowance to £11,850

Chancellor Philip Hammond has announced that the government will raise the tax-free personal allowance to £11,850 for basic rate taxpayers.

During today's Budget, Hammond also confirmed that the higher rate allowance will rise to £46,360.

The personal allowance rose to £11,500 in April 2017 and the government has previously pledged to raise the rate to £12,500 by 2020.

Speaking today, Philip Hammond said: "When we came into office the personal allowance stood at £6,475.


"From April, I will increase the personal allowance to £11,850. And the higher rate threshold to £46,350.

"The typical basic rate tax payer will be £1,075 a year better off compared to 2010. And a full-time worker on the National Living Wage will take home more than £3,800 extra."

Kate Smith, Head of Pensions at Aegon, commented: “People are facing a squeeze in their wallets due to a combination of rising inflation and interest rates with little sign of real wage increases in sight. On top of this employees’ paying auto enrolment minimum contributions are set to see them treble next April. The increase in the personal tax allowance will soften the blow hopefully encouraging people to keep on saving.   

“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%, 40% or 45%.   Moving more people into the basic rate tax bracket means the government top-up is halved.

“Scottish and the rest of the UK higher rate income tax bands continue to diverge, as the Scottish band is currently £43,000, and unlikely to catch up any time soon. This means that some people resident in Scotland and the rest of the UK, but earning the same amount, will not only pay different levels of income tax, but also benefit from different pension tax relief on their contributions."

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