Summer Budget 2015: Rise in the tax-free personal allowance to benefit millions

Summer Budget 2015: Rise in the tax-free personal allowance to benefit millions

Chancellor George Osborne made no changes to the rates of income tax in his summer Budget, but instead announced an increase in the tax-free personal allowance from £10,600 to £11,000 from April 2016.

The move will mean that in 2016 wages will have been boosted by an additional £905 since the coalition's first Budget in 2010, when the personal allowance went from £6,475 to £10,000.

It is flagged as the first step in the Tories' commitment to raise the personal allowance to £12,500 by 2020. The chancellor said today that this would ensure "no one working 30 hours a week on the national minimum wage pays tax."

In addition, Osborne announced that once his target of £12,500 has been reached, the personal allowance will rise in line with the National Minimum Wage.

In addition, the 40% tax threshold will rise to £43,000 from its present level of £42,385 (again, on its way to a higher threshold of £50,000 pledged by the government). As a result, 130,000 people will be taken out of the higher rate income tax bracket, Osborne said.

He added that, taken together, the tax threshold changes will mean that 29 million people pay less tax.

Genevieve Moore, partner at Blick Rothenburg, comments: "Tax rates unchanged but allowances and higher rate threshold to be increased to deliver on pre-election promises. Good news for lower and middle income workers. It's certainly a Budget for working Britain."

Moore points out that the rise in the personal allowance, coupled with rises in the minimum wage through the introduction of the National Living Wage, will "take the very lowest earners out of tax altogether and leave them significantly better off."

She adds that the raising of the higher rate threshold will also help to simplify the tax affairs of ‘middle Englanders' more generally, for example by removing the need to pay additional tax on bank savings.

"The 40% tax was designed to affect the really rich but these days it affects a wide swathe of middle earners. The Tories have not reduced tax for the fat cats and bankers by tinkering with the 45% tax rate, but they have given something back to middle England," she says.

This article was written for our sister website Money Observer