In the Chancellor’s Budget of 3 March 2021, he has announced that the personal allowance and income tax rate bands from 6 April 2021 for the next five years will be frozen.

Even though he has not increased the income tax rate bands in line with the election manifesto, in effect, more people will find that they are potentially going to be paying more income tax or being pulled into the higher rate band of income tax over the next five years.

Below are the changes to the personal allowance and income tax rates.

Personal Allowance

The personal allowance from 6 April 2021 has been set at £12,570 (£12,500 in 2020/21). This means the first £12,570 of income is tax free.

The personal allowance will continue to be restricted if your total income from all sources exceeds £100,000 and where total income from all sources is over and above £125,140, the personal allowance is reduced to nil.

Higher rate threshold

The higher rate threshold in England, Wales and Northern Ireland from 6 April 2021 has been extended to £50,270 (£50,000 in 2020/21). The income tax rates in Scotland are different.

This means that if your total income from all sources is more than £50,270, you will start to pay 40% income tax on your income over and above £50,270 (please note that this figure includes the personal allowance of £12,570).

Where total income is more than £150,000, then the additional rate bands will apply and these have not changed.

These rates are set for the 2021/22, 2022/23, 2023/24, 2024/25 and 2025/26 tax years.

The Impact

The impact of this is over time more people will find themselves paying income tax possibly for the first time or becoming a higher rate income tax payer for the first time.

Where your income may exceed £50,000 for the first time, even though you may not be a higher rate taxpayer and if as a family you are in receipt of child benefit, you may have to pay all or some of it back as you will be impacted by the High-Income Child Benefit Tax Charge.

There may also be a need depending on your personal circumstances for a self-assessment tax return to be prepared for the first time.

Here at Plus Accounting we will be very happy to help you with your personal tax affairs with our personal tax services.

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Author: Anthony Barron, Personal Tax Manager @ Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.

Date Published: 04 March 2021