Millions get an income tax cut over the next few years as the Chancellor is to bring forward planned increases to both the personal allowance and the higher rate tax thresholds.

George Osborne says 29 million people will pay less tax as a result. Here's what's happening (do also check out our Income Tax Calculator for what you pay right now).

Personal allowance to rise

  • Most of us have a 'personal allowance', which is the amount we can earn without paying any income tax. Your personal allowance depends on your salary.

  • It currently stands at £10,600, but will rise to £11,000 in 2016/17, which is sooner than originally planned. In 2017/18, it will rise to £11,200.

  • The Chancellor had originally planned to increase the rates to £10,800 in April 2016 and £11,000 in April 2017, as announced in the March 2015 Budget.

Higher rate threshold to rise

  • In addition, the government has promised to raise the level at which higher rate tax is applied to £50,000 by the end of this parliament. This means more income will be charged at the 20% rather than 40% rate.

  • As a result of this move, the 40% tax threshold will increase from £42,385 now, to £43,000 in 2016/17 and to £43,600 in 2017/18.

  • Again, Osborne had originally planned a slower increase, detailing in the March 2015 Budget that the threshold would rise to £42,700 in 2016/17, and to £43,300 in 2017/18.

For the full details of the current personal allowance, see our Tax Rates guide.

Summer Budget 2015: Income taxes to be cut
Summer Budget 2015: 40% tax rate rise

Won't he just push up National Insurance on the sly?

Not as far as the official figures show just yet.

There is no change to this year's National Insurance Contributions (see our Tax Rates guide for a breakdown of these), and next year's rates are yet to be announced. These are usually confirmed the January before they take effect.

Martin Lewis
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