The Chancellor’s surprise giveaway

Whether or not you believe the Chancellor is right to say that “Austerity” is coming to an end, he certainly surprised most commentators with a number of his announcements, not least of which included the early implementation of the Government’s manifesto promise to increase income tax personal allowances and the basic rate tax band.  The surprise was that this has come earlier than promised.

From 6 April 2019, the personal allowance will be £12,500 and it is easy to forget just how much this has risen in recent years.  As recently as  2011/12, the allowance was only £7,475 so that represents an increase of more than 2/3rds over those 8 years. There have also been increases in the amount of income which is subject to basic rate tax.  In 2011/12, the basic rate tax band was £35,000 so that meant higher rate tax was not payable until taxpayers’ incomes reached £42,475.  From next year, the limit is an eye catching £50,000.

Clearly, both of these measures are designed to reduce the amount of income tax that we each pay, but this time, the higher earners will fare better because the increase in the tax band is more significant than the increase in the personal allowance.  In other words, for those with incomes over £50,000, £3,000 of their income will move from higher rate to basic rate tax giving a saving of £600 per year.  They will also benefit from the increase in personal allowances which is worth an additional £260 making an overall saving of £860.

By contrast, the saving for basic rate taxpayers is limited to £130 per year.

Who says that Christmas has not come early for some?

Author: Paul Feist, Director, Plus Accounting

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