You'll be able to earn up to £11,500 a year without paying a penny of tax from next April, Chancellor Philip Hammond has confirmed.
Hammond kept to promises made by his predecessor George Osborne to raise the personal allowance – the amount you can earn tax-free each year – from £11,000 to £11,500 in the new financial year.
This will mean an extra £100 in your pocket if you're a basic-rate taxpayer, and an extra £200 for higher-rate earners. The Chancellor also pledged to keep plans on track to raise the tax-free personal allowance to £12,500 by 2020.
Autumn Statement 2016: Other key stories
- Salary sacrifice perks cut back
- Insurance premiums likely to rise for millions after tax hike
- National minimum wage will rise to £7.50 [The Government calls the minimum wage for over 23’s the ‘national living wage’. We don’t use that term, as it is not based on assessment of the cost of living. See our National minimum wage guide for more.]
- Letting agents banned from charging tenants upfront fees
- Universal credit cuts scaled back
- Fuel duty frozen for seventh consecutive year
- Pensions freedoms loophole tightened
- Tax-free childcare on track for launch early next year
Here's what's happening (also see our Income Tax Calculator for what you can expect to be taxed now):
- As well as confirming the personal-allowance tax threshold rise to £11,500 from 6 April 2017, Hammond stuck to earlier planned personal tax changes.
So from 6 April 2017, basic-rate tax of 20% is payable on the next £33,500 earned. The rate at which higher-rate tax is payable will be £45,000. (Hammond also reiterated his plan to raise this to £50,000 by 2020.)
- Above the £45,000 threshold, income tax will be payable at 40% up to £150,000. Above this, the additional-rate or 45% tax rate remains unchanged, as does the so-called 'income threshold' of £100,000. Above this, your personal allowance goes down by £1 for every £2 of income about this limit.
- Hammond did suggest that, from 2020, the personal allowance rate would increase annually in line with inflation – rather than rising in accordance with the national minimum wage. Future Chancellors would then be able to raise it by more than inflation if they were able to, Hammond added.
He said this change would mean typical basic-rate taxpayers will pay half in tax each year compared with what they paid in 2010/11, when the personal allowance was £6,475.
In addition, changes to national insurance (NI) contributions for the self-employed were confirmed by the Chancellor, as announced in the Budget earlier this year.
So-called class 2 NI 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 NI 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.
Hammond also confirmed that NI paid by employers and employees would be aligned from April 2017. It means NI will begin to be paid on weekly earnings of more than £157. Also, the starting rate for savings – the band of savings income subject to the 0% starting rate – will remain at its current level of £5,000 for the 2017/18 tax year.