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Autumn Statement 2014: income tax

First £10,600 tax-free. What do the changes mean?

George Osborne

In today’s Autumn Statement, the Chancellor confirmed tax rates and allowances for 2015-16 and outlined his future tax plans.

Tax-free threshold rises to £10,600 

Personal allowance (the level of income you are allowed to receive tax-free) will be increased to £10,600 for 2015-16. These rates will come into force on 6 April 2015.

Age-related personal allowance consequently rises for those born before 6 April 1948, to £10,600. For those born before 6 April 1938 it remains frozen at £10,660. 

George Osborne said he wanted to further raise personal allowance, to £12,500, over the life of the next Parliament.

Find out more: Tax rates, allowances and amounts – find out how much tax you should pay

Higher-rate tax threshold confirmed at £42,385

Tax rates for 2015-16 remain unchanged, at 20%, 40% and 45%. 

As previously announced in the Budget, the 10% ‘starting rate’ for tax on savings income will be abolished and replaced by a nil-rate band for savings income of £5,000 above personal allowance. This means anyone with a total income of less than £15,600 will not pay tax on their savings income.

The higher-rate tax threshold, above which income is taxed at 40%, will be increased to £42,385 in 2015-16. The first £10,600 is tax-free, while the next £31,785 will be taxed at 20%. The threshold for 45% income tax remains unchanged at £150,000. 

Additional-rate taxpayers

As is currently the case, those with incomes over £100,000 lose personal allowance, at the rate of £1 for each additional £2 of income. 

For 2015-16 this means that those who have income above £121,200 receive no tax-free income, and pay 20% tax on the first £31,785, 40% on income above this and 45% on income over £150,000. 

Mr Osborne said he intended to further raise the 40% tax threshold to £50,000 ‘by the end of the decade’. 

Capital gains tax 

Capital gains tax (CGT) – which is a tax you have to pay when you sell a second home or a valuable item that has gained substantially in value – rates remain at 18% and 28% (for basic rate taxpayers and higher-rate taxpayers respectively). 

Capital gains of £11,100 or less are exempt from CGT. This is a £100 increase on the 2014-15 threshold of £11,000.

Find out more: What is capital gains tax? Video guide – the lowdown on CGT

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