32M SEE TAX BILLS SLASHED

Up to £860 will be put back in your pocket from next April

MORE than 30million workers will see their tax bills slashed by up to £860 from next April.

Chancellor Philip Hammond reserved his most dramatic Budget announcement yesterday to declare that he would raise the income tax thresholds a year early.

The tax cut is a major boost for families’ takehome pay and will take effect just days after Britain formally leaves the EU next year.

It means people will avoid paying the basic rate of income tax until they earn £12,500 a year – and will not pay the higher 40 per cent rate until they earn more than £50,000.

Basic-rate taxpayers in England and Wales will save £130 compared with their current tax bill. Higher-rate earners will take home an extra £860 a year.

A married couple where both partners earn more than £50,000 will save an extra £1,720 between them.

Experts last night championed the move as ‘a welcome boost’ for hard-working families. The amount workers can earn each year before paying the 20 per cent basic rate of income tax – the so- called personal allowance – currently stands at £11,850.

At present, workers begin paying the higher 40 per cent rate of tax at £46,350.

The Conservative Party had pledged to increase the personal allowance to £12,500 and the higher-rate threshold to £50,000 by 2020.

But these increases will now come into effect 12 months ahead of schedule at the start of the next tax year on April 6, 2019.

Experts had feared Mr Hammond would be forced to renege on this promise in a bid to cover the cost of the Government’s £20billion funding pledge to the NHS.

But Mr Hammond said: ‘I have received representations that the least painful way for taxpayers to contribute to increased NHS funding would be to abandon our manifesto pledges and freeze the personal allowance and the higher-rate threshold at current levels.

‘But let me reassure the House that my idea of ending austerity does not involve increasing people’s tax bills’.

He added that through careful management of the economy, he could not only keep this promise but go even further and raise the personal allowance and higher-rate thresholds a year early.

‘A tax cut for 32million people, £130 in the pocket of a typical basic-rate taxpayer, meaning since 2015 we’ve taken 1.7million people out of tax altogether and nearly one million people out of higherrate tax,’ he said.

The new thresholds will be frozen until the tax year starting in April, 2021.

At this point they will increase with inflation as measured by the Consumer Price Index, currently 2.4 per cent. This will mean that as people earn more they will not automatically be dragged into a higher tax band.

Around 30.6million people pay income tax in the UK, according to the Government’s most recent figures.

Of these, 26.2 million will be basic-rate taxpayers, while four million are higher-rate taxpayers.

The move is estimated to cost the Treasury £2.8billion in the next financial year, according to the Budget’s analysis.

For those earning over £100,000, the personal allowance goes down by £1 for every £2 of income above the £100,000 limit. Those earning £123,700 or above do not get a personal allowance at all. This means they pay tax on all their earnings, and will start paying the higher rate earlier – currently, this will be on any income over £34,500.

The Scottish income tax rates will not be announced until the Scottish Budget in December. Steve Webb, director of investment firm Royal London, said: ‘After years of seeing their wages squeezed, millions of working people will welcome the boost to their take-home pay from the larger than expected increase in the taxfree personal allowance.’

Ros Altmann, former pensions minister, said: ‘It is great news that the threshold increase has come forward a year as people will have more money in their pockets.

‘And with employee pension contributions set to double next April, this will go a long way to protecting people’s take-home pay so they don’t feel the effects as much. This means more people are likely to keep saving into their pension’.

Laith Khalaf, senior analyst at investment firm Hargreaves Lansdown, said: ‘Bringing forward the manifesto pledge to boost the personal allowance and higher-rate threshold will raise a cheer from millions of taxpayer.’

Patricia Mock, tax director of Deloitte, described the move as ‘a surprising but welcome boost to taxpayers’.

Mark Littlewood, director general of the Institute of Economic Affairs think tank, said: ‘In many respects he is simply making up for lost time. If wages continue to outpace inflation, it won’t be long before more workers are dragged back into paying income tax at both the basic and higher rate.’