The Daily Telegraph - Saturday - Money
‘The higher-rate tax threshold will reach £50,000 by 2020’
Increases in income tax thresholds will go ahead as planned as the Government backed away from making changes to the existing schedule in the Autumn Statement, writes Sam Brodbeck. For the 2017-18 tax year the personal allowance – the level at which income tax begins to be paid – will rise from £11,000 to £11,500.
At the same time the higher-rate, 40pc, income tax threshold will rise to £45,000.
Philip Hammond, the Chancellor, has pledged that the thresholds will rise again to £12,500 and £50,000 respectively by the end of the current parliament in 2020.
After this point, the personal allowance will rise in line with the consumer prices index (CPI) measure of inflation, rather than the national minimum wage, Mr Hammond added.
This will bring the way the allowance is increased into line with the higher-rate threshold.
The Chancellor of the day will have discretion to raise the thresholds by more than the CPI, however.
The additional-rate, or 45pc, threshold is unchanged, as is the “income limit” of £100,000. The personal allowance goes down by £1 for every £2 of income above this limit.
Mr Hammond said raising the personal allowance had given a “massive boost to the incomes of low and middle earners”.
“We have more than halved the tax bill of someone with a salary of £15,000 to just £800,” he said. “Since 2010 we’ve cut income tax for 28million people and taken 4million people out of income tax altogether.
“And I can confirm today that, despite the challenging fiscal forecasts, we will deliver on our commitment to raising the allowance to £12,500 and the higher-rate threshold to £50,000.”
Income tax thresholds have risen steadily over recent years – meaning higher earners are paying an ever-increasing proportion of the state’s total tax receipts.
The bottom 50pc of the population, by pre-tax income, are forecast to contribute just 9.9pc of all income tax in 2016-17. The wealthiest 50pc pay the remaining 90.1pc, HMRC figures show.
Mr Hammond also confirmed that National Insurance (NI) paid by employers and employees would be aligned from April 2017. This means NI will begin to be paid on weekly earnings of more than £157.