21 March 2012
Personal allowance increase
The personal allowance will increase to £9,205 by April 2013. Chancellor George Osborne says the move will give 24m people an extra £220 a year. He also said it would mean 2m people won’t have to pay tax at all.
The move increases the amount most people can earn before they have to start paying income tax.
At the moment, the personal allowance is £7,475. From next month, it will increase to £8,105 - and in April 2013 it will increase to £9,205.
From April next year, the average worker who earns under £100,000 will save £179 a year. By 2014, they will be saving £250 a year. People most likely to pay no tax at all will be part-time workers.
The Chancellor said: “This coalition government believes that the best way to support working people on the lowest incomes is to take them out of tax altogether.
“And the best way of getting money directly into pockets of working families on middle incomes is to increase the amount of their earnings they can keep before they pay tax.”
Tax breaks for pensioners to change
From April 2013, the age related allowance will be abolished for new pensioners - and it will be phased out for existing pensioners.
At the moment, the amount of income most people can receive before they’re taxed increases slightly when they turn 65, and then again when they reach 75.
In the near future, however, pensioners will only have the same personal tax allowances as people in work.
In 2012 the age allowance will still increase and you might want to take advice to see how you can benefit.
The Chancellor also confirmed that he would set up an automatic review of the state pension age to make sure it keeps on rising if people keep on living even longer, which means to 68 and beyond.
The state pension age is already scheduled to rise to 67, for both men and women, by 2026.
Top rate tax down to 45p
From April 2013, people earning over £150,000 a year are winners. The Chancellor said the previous 50p tax had raised just a third of what it had been expected to achieve and made Britain uncompetitive.
The move will come about in April 2013. The chancellor said the 50p tax had been acknowledged as “harmful” to the economy.
It means that if you’re an additional rate tax payer, 2012-13 will be your last opportunity to get 50% tax relief on pension payments. You may want to seek advice to see how you can take advantage of this.
George Osborne said: “No Chancellor can justify a tax rate that raises next to nothing and damages our economy.
“It is higher not just than the tax rate of America, but also of major European countries like France, Italy and Germany.
“It is widely acknowledged by business organisations and international observers as harming the British economy.”
George Osborne announced that 90% of families will keep some or all of their child benefit. It won’t be until one parent earns £50,000 that there will be a reduction in the full amount of benefit paid. A parent earning more than £60,000 won’t qualify for child benefit at all.
The benefit had been due to be removed from all families with at least one parent paying the higher 40% rate of income tax from January 2013.
However, the Chancellor said he wanted to avoid a “cliff edge” effect where a parent earning fractionally below the threshold would get the full benefit, and a parent earning very slightly over would get none.
A parent who earns more than £50,000 will lose 1% of benefit for every £100 over that amount. This means that when they earn £60,000, they will no longer qualify for the benefit.
The move means that 750,000 households will not lose all of their child benefit.