You are here: Home - Saving & Banking - News -

Personal allowance set to rise 0.5% next year

Written by:
The personal allowance will rise in line with inflation from next year, the government has confirmed.

The personal allowance is the amount you can earn before having to pay any income tax.

It currently stands at £12,500 and means if you earn below this threshold, you shouldn’t have to pay any income tax.

As part of today’s Spending Review, it was confirmed that the government will increase the 2021/22 personal allowance in line with the September Consumer Prices Index (CPI) measure of inflation. This figure stood at 0.5%.

It will also apply to the higher rate threshold.

Further, the government confirmed it will also use the September CPI figure as the basis for setting all National Insurance limits and thresholds, and the rates of Class 2 & 3 National Insurance contributions, for 2021/22.

Personal allowance and thresholds

Calculations from the Low Incomes Tax Reforms Group (LITRG), reveal the personal allowance will rise to £12,570 while the higher rate threshold will rise to £50,250.

It added that for NICs, the class 1 primary threshold could increase from £183 a week to £184, while the upper earnings limit would rise from £962 a week to £967.

Based on someone earning a £25,000 salary, they would pay £14 less in income tax and £5.64 less on class 1 NIICs.

For someone earning £55,000 a year, they would see an income tax fall of £64 and class 1 NICs reduction of £19.36, LITRG calculated.

Joanne Walker, LITRG technical officer, said: “Too often, tax and related welfare laws and administrative systems are not designed with the low-income user in mind and this often makes life difficult for those we try to help.

“If a lower income worker is also claiming means-tested benefits, for any increase in their net of tax income (caused by these reductions), they are likely to see a fall in their benefits; for example with universal credit, there is a 63% taper, meaning they would only see 37% of the tax saving.

“These are quite small savings annually, and there might be more targeted ways of assisting lower income workers. For example, for those claiming universal credit, increasing the work allowance would be more beneficial. As ever, the personal allowance already takes a significant number of workers out of the tax system altogether, and an increase in the personal allowance does nothing to assist them.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

It’s time to get your finances in shape, and moving your cash savings to a higher paying deal is a good plac...

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The experts’ guide to sorting out your personal finances in 2021

From opting to ‘low spend’ months to imposing your own ‘cooling-off period’, industry experts reveal t...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Privacy Preference Center