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Personal allowance and higher rate tax threshold to rise

Written by: Paloma Kubiak
The personal allowance will rise to £11,500 from April next year, George Osborne has announced.

Currently, the amount of income you can earn before you start paying tax is £10,600. This will rise to £11,000 for the 2016/17 tax year and £11,500 for the 2017/18 tax year, the chancellor said in his Budget speech today.

Osborne said it was “a tax cut for 31 million people”.

“It means a typical basic rate taxpayer will be paying over £1,000 less income tax than five years ago. And it means another 1.3 million of the lowest paid taken out of tax altogether,” he said.

It also means that no-one working 30 hours per week on the National Minimum Wage will pay income tax in 2017/18.

Higher rate of income tax

The chancellor also revealed the higher rate tax threshold would increase to £45,000 in April 2017. It’s currently £42,385 and will rise to £43,000 in April this year.

UK citizens currently pay a 20% basic rate of tax on earnings up to £42,385, 40% on £42,386-£150,000 and 45% on income above £150,000.

Osborne said the move “will lift half a million people out of the higher tax band altogether”.

Class 2 contributions abolished

The government also announced it would abolish Class 2 National Insurance contributions, benefiting 3.4 million self-employed people, from April 2018.

Currently you pay Class 2 National Insurance (£2.80 per week if your profits are £5,965+ per year) and Class 4 (9% on profits between £8,060 and £42,385) and 2% on profits above this.

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