Millions of workers to get pay rise as Rachel Reeves reveals income tax threshold changes
Date: 2024-10-30MILLIONS of workers are set to get a pay rise after the Chancellor today announced that a freeze on income tax thresholds will end.
The income tax threshold, known as the personal allowance, has remained at £12,570 since 2021.
Only those whose earnings breach this level are liable to pay income tax.
Separate higher and additional rate income tax thresholds exist for those with substantial earnings.
Income tax thresholds have been frozen since 2021 and these freezes had been due to end in 2028.
There were fears that the government would extend the freeze on income tax thresholds until 2030.
However, Chancellor Rachel Reeves has now confirmed that this will not happen.
She said: “The previous government froze income tax and National insurance thresholds in 2021 and then they did so again after the mini-budget.
“Extending their threshold freeze for a further two years raises billions of pounds.
“Money to deal with the black hole in our public finances… … and repair our public services.
“Having considered the issue closely I have concluded that extending the threshold freeze would hurt working people.
“So there will be no extension of the freeze in income tax and National Insurance thresholds beyond the decisions of the previous government.
“From 2028-29, personal tax thresholds will be uprated in line with inflation once again.”
What is the personal allowance?
THE personal allowance is the amount you can earn each year tax-free.
In the current tax year – which runs from April 6 2024 to April 5 2025 – the figure is £12,570.
Any earnings above this threshold are taxed at different rates, depending on the income bracket.
However, this amount may be larger if you claim certain allowances, including a blind person’s allowance, marriage allowance and child tax credit.
Income tax also applies to money you make outside your job, not just your earnings.
But there are also some tax-free allowances on top of the personal allowance for these other sources of income.
If you are self-employed, you don’t have to pay tax on savings interest, dividends and the first £1,000 of income.
INCOME TAX RATES
You currently pay no income tax if you earn £12,570 or less.
On earnings between £12,570 and up to £50,270, you pay the basic income tax rate of 20%.
Wages of £50,271 and above are taxed at the higher rate of 40%.
The additional income tax rate, which applies to earnings above £150,000, is 45%.
The income tax thresholds generally rise yearly so that people can earn more without paying more tax.
These thresholds will rise again in now frozen until 2030.
