The individual Personal Allowance (PA) currently stands at £11,000, meaning individuals can earn up to £11,000 each year before any necessity to pay income tax on their salary. The March 2016 Budget Announcement increased Personal Allowances to £11,500 for the 2017 – 2018 tax year. The knock on effect of this change increases the upper earnings limit for basic rate tax payers to £33,500 from the start of the 2017 tax year. These changes are in line with Government’s objective to increase Personal Allowances to £12,500 by the close of their term in Parliament and will be enshrined in legislation when the Summer Finance Bill 2016 is passed.
Increase to Higher Rate Threshold 2017
The Higher Rate Threshold is increasing to £45,000 from the 2017 tax year, and this change will also be incorporated into the Summer Finance Bill 2016 when is presented to Parliament. This increase takes Higher Rate Threshold up from £43,000 and is in line with Government commitment to raise the threshold to £50,000 by the end of their term in power.
Likely Effects of These Changes
Although taxation revenue paid to the Exchequer will fall when these increased allowances take place, the Treasury estimation of the impact of these changes is positive for most UK adults. It is anticipated that 24.1 million basic rate tax payers will benefit from the increased Personal Allowances, with an average real gain of £56 per annum and a further 424,000 individuals taken out of the taxation system completely. Higher rate tax payers are estimated to benefit from average real gains of £233 per annum. It’s also estimated these measures will lead to increased household consumption or abilities to save money, while confirming to all UK individuals that entering paid employment is beneficial.
The actual individual gains or losses from this announcement will vary due to circumstances, and it is also estimated that 1.6 million individuals will suffer average real losses of around £23 from 2017. Tax payers with income above £123,000 from April 2017 will not experience any advantages from the increased higher rate threshold as this is being addressed by tapering benefits to these individuals down to zero via their Personal Allowances.
If you would like to discuss taxation, finance, income or accounting concerns in detail, contact MCC Accountants and we’ll be happy to advise you.