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Budget 2015: Tax rates and allowances

Personal allowance to contunue increasing

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
  2014-15 2015-16 2016-17 2017-18
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 £150,000 Over £150,000 Over £150,000 Over £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 ) £10,500 N/A N/A N/A
Age-related personal allowance (born before 6 April 1938) £10,660 £10,660 N/A N/A

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