Budget 2015: Tax rates and allowancesPersonal allowance to contunue increasing

18 March 2015

George Osborne

The Chancellor today confirmed his intention to continue raising the personal allowance - and to increase the 40% tax threshold.     

Personal allowance rises

The amount of income you can keep before paying any tax has increased notably since the coalition government took office (from £6,475 in 2010 to £10,000 in 2014-15). It is due to rise again in April, to £10,600. 

Mr Osborne has today pledged to increase it further - to £10,800 in 2016-17 and to £11,000 in 2017-18. In his Budget speech, he described this move as: 'A down-payment on our commitment to raise the personal allowance to £12,500.'  

Most taxpayers will receive a personal allowance, but those with incomes above £100,000 lose it at the rate of £1 for each extra £2 they receive. In 2015-16, if your income is above £121,200 you'll receive no tax-free allowance at all, paying tax on everything you receive.  

Find out more: Budget 2015: the highlights - a round-up of the key announcements

Transferable allowance increases 

In 2015-16, married couples and civil partners will be able to share some of their personal allowance between them for the first time. Unused allowance from one partner can be used by a higher-earning second partner to save tax. The amount you can transfer is capped at £1,060 in 2015-16. Mr Osborne noted that this will increase to £1,100 by 2017-18. Only couples who are both 20% taxpayers can transfer allowance in this way. 

Age-related allowance ends

Until recently, people who were born before April 1948 received an additional age-related personal allowance. This was frozen in 2012, while basic personal allowance continued to rise. By 2015-16 those born before 1948 but after 1938 no longer received any additional allowance. Mr Osborne's announcement that basic allowance would rise to £10,800 in 2016-17 means that it outstrips the £10,660 received by those born before April 1938. An individual's date of birth will no longer confer any additional tax-free allowance from April 2016 onwards.  

Higher rate tax threshold rises

The Chancellor's Budget announcement also referred to the threshold above which 40% tax is charged. In 2015-16 this will be £42,385 (£31,785 after personal allowance). 

Mr Osborne gave details of how it will rise in 2016-17 and again in 2017-18. 'For the first time in seven years, the threshold at which people pay the higher tax rate will rise not just with inflation – but above inflation. It will rise from £42,385 this year to £43,300 by 2017-18'.

As with the rise in personal allowance, the Chancellor indicated a long-term goal of a 40% tax threshold of £50,000.    

Tax basics explained
 2014-152015-162016-172017-18
Basic rate income tax (20%)£0-£31,865 (after allowance)£0-£31,785 (after allowance)£0-£31,585 (after allowance)£0-£32,300 (after allowance)
Higher rate income tax (40%)Over £31,865 (after allowance)Over £31,785 (after allowance)Over £31,585 (after allowance)Over £32,300 (after allowance)
Additional rate income tax (45%)Over £150,000Over £150,000Over £150,000Over £150,000
Personal allowance (tax-free)£10,000£10,600£10,800£11,000
Income limit above which you start to lose personal allowance (at rate of £1 for each £2 you earn above limit)£100,000£100,000£100,000£100,000
Age-related personal allowance (born before 6 April 1948 )£10,500N/AN/AN/A
Age-related personal allowance (born before 6 April 1938)£10,660£10,660N/AN/A

 More on this...

Cookies at Which? We use cookies to help improve our sites. If you continue, we'll assume that you're happy to accept our cookies. Find out more about cookies