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.
Martin Lewis
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