Low and middle income earners under 65 could pay less in tax from next April, Chancellor George Osborne said today.

This is because he will raise the amount of income people can earn before they pay tax.

Personal allowances were due to rise from £8,105 to £9,205 in April, when the new tax year begins, but will instead rise to a higher £9,440.

As a result, an estimated 245,000 individuals will not pay any tax at all.

For those who do, the original plan would have seen many basic rate taxpayers paying £220 less during the next financial year, assuming no change in salary. But this figure rises to £267 under today's announcement.

Above the personal allowance, workers pay 20% tax, so the £235 increased allowance equates to a £47 fall in tax due for basic rate payers, again, assuming no salary change.

In real terms, as many salaries will rise, the gain will be smaller.

No gain for elderly

Those born before 6 April 1948 will keep the same personal allowance of £10,500 if born between 6 April 1938 and 5 April 1948, and £10,660 if born before 5 April 1938.

Therefore, they will pay the same amount of tax next year as they do now, assuming the same income. If their income rises, they pay more tax, making this an effective tax rise.

Osborne said in his Budget statement in March that personal allowances for the elderly would be frozen.

Higher rate taxpayers will not gain as their tax bill will rise next year.

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