Tax-free allowance rises as Government fights 10p tax row

The Chancellor has announced that everyone's tax-free Personal Allowance for 2008/09 (i.e. this tax year) will rise £600 to £6,035. This will fully or partly reimburse those who lost out when the 10p tax-rate was scrapped; and give a tax cut to many others.

For all basic-rate taxpayers who earn above £6,035 the impact is a £120 gain and it will be backdated to the 6 April, start of the tax year. This money will go straight into people's pay, with £60 extra coming in September, and an increase of £10 per month for the rest of the financial year until next April.

Will this make up for the end of the 10% band?

If you are a basic-rate taxpayer earning £6,035 or more, you'll pocket £120 more over the year than you would have done before this announcement.This will make up what you lost when the 10% band disappeared, unless you earn between £7,130 and £9,075, when you could still be up to £30 out of pocket compared to last year (though the Govt says many will have had tax credit rises too).

Higher Rate Taxpayers won't gain (or lose)

For higher-rate taxpayers, the 40% threshold will shift down by £600 to £40,835, meaning most will earn exactly the same as they would have done (if you earn between £40,835 and £41,460, you make a small profit).

See the Chancellor's full statement