With the new tax year beginning tomorrow, multiple tax thresholds and allowances will change. Which? analyses who will be better and worse off under the changes.
Among the increases in allowances, the top rate income tax falls to 45%, while basic rate taxpayers get to keep more of their income tax-free.
Taxpayers get increased personal allowance
Increasing personal allowance (the amount of income you can keep before paying tax) was an early goal of the Coalition government. From £6,475 in 2010, it had risen to £8,105 by 2012/13 and will increase to £9,440 in 2013/14.
The £1,335 addition is worth £267 to a basic rate taxpayer and has been described by the Chancellor as ‘a direct boost to the incomes of people working hard to provide for their families’.
By raising the tax threshold, the government has lifted an estimated 2 million out of paying income tax altogether. It intends to raise personal allowance further in 2014/15, to £10,000.
Age-related personal allowance is frozen
Personal allowance for older people has been frozen at the same levels as 2012/13. For those born before 6 April 1948 it is £10,500 and for those born before 6 April 1938 it is £10,660.
The extra allowance is means-tested however and will be withdrawn at the rate of £1 for every £2 your income exceeds £26,100. For those born before 6 April 1948 this means they get no additional allowance once their income exceeds £28,220.
For those born before 6 April 1938 the cut-off is £28,540. Above these limits, older people receive the standard personal allowance for 2013-14 of £9,440.
Find out more in out guide to age-related allowances.
More to pay higher-rate tax
The threshold at which higher rate tax is payable at 40% will fall in 2013/14, from £34,370 to £32,010. This is due on your taxable income – so excludes personal allowance.
An estimated 400,000 taxpayers will be caught by the lower threshold and pay 40% tax for the same time.
Additional rate tax falls
The top rate of income tax falls in 2013/14, from 50% to 45%. The additional rate applies to those whose taxable income exceeds £150,000.
These high earners get no personal allowance, as it is withdrawn at the rate of £1 for every £2 your income exceeds £100,000 and is lost altogether at £118,880.
Tax on dividends falls for additional rate taxpayers too – from 42.5% to 37.5%.
Capital gains tax
Capital gains tax rates remain unchanged in 2013/14, at 18% for standard rate taxpayers and 28% for higher rate taxpayers. The annual capital gains tax allowance rises from £10,600 to £10,900.
Isa limits raised
The amount you can save tax-free in an Isa rises in 2013/14, from £11,280 to £11,520. This is the overall limit.
A maximum of £5,760 can be saved in a cash Isa, and a further £5,760 can be invested in a stocks and shares Isa in the same year.
The limit for Junior Isas is increases for 2013/14, from £3,600 to £3,720. The same annual limit applies to Child Trust Funds.
IHT threshold unchanged
The nil-rate band, above which inheritance tax (IHT) is payable at 40%, will not change in 2013-14 and remains at £325,000. The government has indicated that the IHT threshold will remain frozen at this level until 2018.
State pension increase
The start of the new financial year also signals a rise in basic state pension from £107.45 per week, to £110.15 per week in 2013-14. This is an increase of 2.5%.