Personal Allowance is rising this year – what HMRC change means for how much tax you pay | Personal Finance | Finance

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Currently, the standard Personal Allowance is £12,500. However, it won’t remain this way for much longer as HM Revenue and Customs (HMRC) will be increasing it later this year.

The threshold will rise by inflation, which is formally known as the Consumer Prices Index (CPI).

This year, the rate is 0.5 percent, which is how much the Personal Allowance will therefore rise by on April 6, 2021.

It was announced in the Spending Review, with details published in the Spending Review 2020 policy paper.

Chancellor of the Exchequer Rishi Sunak delivered a Spending Review statement in the House of Commons in November last year.

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According to calculations from the Low Incomes Tax Reforms Group (LITRG), the standard Personal Allowance will rise to £12,570.

It means – for those with this standard allowance – £12,570 of taxable income could be earned before tax rates kick in.

The Higher Rate Threshold will also rise in April this year, also in line with the September CPI figure.

Calculations suggest this threshold will change to £50,250, up from £50,001.

The basic rate tax band at the moment covers taxable income between £12,501 and £50,000.

Basic rate taxpayers will pay a tax rate of 20 percent on this income.

The higher rate currently applies to taxable income from £50,001 to £150,000.

This higher tax rate is 40 percent.

Additional rate taxpayers will need to pay 45 percent on any taxable income which is over £150,000.

It may be that a person has a higher or a lower Personal Allowance – with one example of this being due to claiming the Marriage Allowance.

Alternatively, those who taxable income which exceeds £100,000 per year will have a smaller Personal Allowance.

“The Personal Allowance goes down by £1 for every £2 of income above the £100,000 limit. It can go down to zero,” the government explains.

Once a person has taxable income over £125,000, they will not get a Personal Allowance.

The tax year runs from April 6 through to April 5 in the following year.

It’s important to be aware that not all income is taxable.

Additionally, there are tax-free allowances which people are have. An example of this is savings interest.

The Personal Savings Allowance means a person may get up to £1,000 of interest per tax year and they don’t have to pay tax on it.

However, this does depend which Income Tax band they fall into.

“To work out your tax band, add all the interest you’ve received to your other income,” the government explains.

The Personal Savings Allowance for basic rate taxpayers is £1,000, while it’s £500 for higher rate taxpayers. At the additional rate, it is £0.





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