Year-End & Cash Flow

The Budget 2016: George Osborne recognises high and low-rate taxpayers

Fred Heritage | 17 March 2016 | 8 years ago

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Osborne raised the highest rate of income tax threshold to 45, 000 in the 2016 Budget

British taxpayers will be able to retain more of their earnings thanks to measures brought forward by George Osborne in his 2016 Budget announcement.?

In changes that will impact individuals that pay both higher and lower rates of income tax, the chancellor increased the personal allowance of tax-free income by 600 to 11, 000 whilst raising the highest rate of income tax to 45, 000 the biggest above-inflation increase to the 40p income tax threshold since it was introduced in 1989.

Representing a tax cut for 31m people, the personal tax-free allowance will rise to 11, 000 in two weeks? time, subsequently rising to 11, 500 in April 2017.

Raising the personal allowance has been a long-term theme of Osborne’s Budget’s since he became chancellor in 2010, and this move can be seen as a further step towards the Conservative party’s pledge to increase the allowance all the way to 12, 500 by the end of parliament 2020.

The hotly-anticipated increase of the higher income tax rate threshold to 45, 000 from 42, 385 has also long been an intention of the Conservatives. In its April 2015 manifesto, the party outlined plans to raise the threshold, deeming it unfair that so many people should be subject to the higher rate.?

In his address to the House of Commons on 16 March, Osborne said that increasing the threshold will lift over half a million people who should never have been paying the higher rate out of that higher tax band altogether”.

this delivers the government’s ambition to reverse the trend whereby an increasing number of individuals are faced with paying the higher rate. In 2017 to 2018, there will be 585, 000 fewer higher rate taxpayers than at the start of the parliament, Osborne went on to say.

Commenting on the announcement, partner at tax advisor Russell New, Vince McLoughlin said: For middle income earners who instinctively striving to improve their purse-strings there is no better way to support them than by increasing the threshold where workers pay 40 per cent tax.

when conceived years ago, this tax rate was for the relatively well-off. However, mortgage and rent, season tickets, car, insurance, etc all leave little for luxuries, added McLoughlin.

Despite it representing one of Osborne’s headline Budget announcements, research conducted by thinktank The Resolution Foundation found that such an increase to the threshold would benefit relatively few employees, due to the fact that just 15 per cent earn above the current threshold.

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