Spring Statement 2022: Basic rate income tax to be cut to 19% from 2024
The move means basic rate taxpayers will only pay 19p in the pound, down from 20p, from 2024. Sunak described the cut as “historic” and said the tax cut for workers, pensioners and savers will be worth £175 on average for 30 million people.
The 19% rate will apply to the basic rate of tax levied on income from employment, the savings basic rate and the default basic rate (which applies to a very limited category of income taxpayers made up primarily of trustees and non-residents).
The change will be implemented in a future Finance Bill. A three-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20% until April 2027.
The reduction in the basic rate for non-savings-non-dividend income will not apply for Scottish taxpayers because the power to set these rates is devolved to the Scottish Government.
Under the agreed Fiscal Framework, the Scottish Government will receive additional funding, worth about £350m in 2024-25. Sunak said it is for the Scottish Government to use this additional funding as it chooses to, including on reducing income tax or other taxes, or increased spending.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The promise of an income tax cut in April 2024 offers hope for the future, when the basic rate will fall by 1p, to 19p in every pound. However, there’s an awful lot of inflationary pain to get through between now and then, and while this tax cut may be a light at the end of the tunnel, it’s a pinprick of light at the end of a very long and increasingly dark tunnel.”
Other critics said the timing of the income tax rate cut gives Brits a clue about when the next general election will be held.
Tim Walford-Fitzgerald, partner at accountancy firm HW Fisher, said: “Dropping the one penny from the basic rate of income tax is a tactical and political move from the chancellor. Assuming it comes into effect from April 2024, the first payslip you will see this in will arrive at the same time as election leaflets ahead of the next planned general election in May 2024 – a coincidence, or a well-planned strategy?” If you’re new to income tax, then hire an income tax preparation service to help you with the process.