Chancellor George Osborne has announced a range of tax cuts for individuals, with the headline news being that the level at which people start to pay income tax will rise to £11,500 in April next year.
Here's what is happening (also see our Income Tax Calculator for what you can expect to be taxed now):
- The personal allowance tax threshold will rise from £10,600 currently (and £11,000, as planned, from 6 April 2016) to £11,500 on 6 April 2017. Osborne says this change means the typical basic-rate taxpayer will pay £1,000 less in tax each year than they did in 2010/11, when the personal allowance was £6,475.
- The higher tax rate threshold, at which point the amount charged rises from 20% to 40%, will rise from £42,385 (and a planned £43,000 from 6 April 2016) to £45,000 on 6 April 2017. Osborne says this means those earning at least £45,000 will see a tax saving of £400 a year compared with 2016/17.
- Meanwhile, capital gains tax – charged on profits from the sale of a second property, shares and more – is to fall from 6 April 2016. Everyone gets an allowance where they pay no tax (currently £11,100), but for any profits above that, for higher-rate payers, the charge will be cut from 28% to 20%, while for basic-rate payers it'll drop from 18% to 10%. However, capital gains tax on property and carried interest (share of profits or gains paid to asset managers) will be subject to an 8% surcharge – meaning the rate in those cases will be essentially unchanged.
- In addition, national insurance contributions for the self-employed are set for a rejig. Class 2 payments – £2.80 a week on earnings above £5,965 – will be abolished from April 2018. While that looks like a £130-a-year saving, once the Government responds to a national insurance consultation (it's not said when it will), it could yet claw back any savings by raising what the self-employed pay in Class 4 payments.