Budget 2017: personal allowance to rise to £11,500
Chancellor Phillip Hammond has reaffirmed the government’s plans to increase the personal tax allowance to £12,500 by the end of this Parliament in his Budget speech.
As previously announced, workers will see their personal tax allowance rise to £11,500 from 6 April 2017 and the allowance will reach £12,500 by the 2019/20 tax year.
Earnings below this amount are not liable to pay any income tax.
Rebecca Williams, client director at Brown Shipley, says: “As the personal income tax allowance increases, married clients and those in civil partnerships should consider whether their joint affairs are structured in a tax efficient way. Are both partners are using their personal allowances and basic rate tax bands? Can they restructure investments and/or income to ensure this happens?"
Higher rate tax payers will receive a further tax break as the 40% tax threshold is increased once more. From April 2017 only those with an income of more than £45,000 will be subject to a 40% rate of income tax. At present the threshold starts at £43,000 and the Conservatives have pledged to increase this to £50,000 by end of the current Parliament.
The minimum wage will rise from £7.20 to £7.50 from April 2017, Mr Hammond confirmed. Additionally, the amount that can be invested in an individual savings account (Isa) will also rise to £20,000 next month.
There were significant changes to the way self-employed people are taxed. From April 2018 class 4 national insurance contributions (NICs) will rise from 9% to 10% and a further 1% increase will be implemented in April 2019. Class 2 contributions will also be axed, as previously announced.
Elsewhere, the government announced plans to introduce free transport for pupils who attend grammar schools and receive free school meals.
Free Childcare will be extended to working families with children under 12 in England, providing up to £2,000 a year to help with childcare costs. From September 2017, this free childcare offer will double, from 15 to 30 hours a week for families with three and four year olds.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.