05 March 2021
Personal Allowance Freeze until April 2026
One of the many things Rishi Sunak announced in his 2021 Budget was that the personal tax allowances would be increased as planned for April 2021 and then be frozen until April 2026. The increase of allowances and thresholds from 2019-20 to 2020-21
- Personal Tax Free Pay increases from £12,500 to £12,570 an £70 increase
- The 40% Tax threshold increases from £50,000 to £50,270 an £270 increase
- The 45% Tax threshold remains the same at £150,000
This change will only apply in England, Northern Ireland and Wales.
Can You Increase your Personal Allowance
You may be able to increase your personal allowance and this can be done several ways, for example if you are married your partner can transfer a maximum of 10% of their personal allowance to you (£1,257) thereby increasing your allowance from £12,570 to £13,827. Or if you But you will also reduce your personal allowance once you start earning over £100,000 per year it is reduced by £1 for every £2 over the £100K so by the time you reach £125,000 there is no personal allowance available. The amount of income tax you pay increases with how much you earn.
- On earnings between £12,571 and £50,270, you pay the basic rate of 20%
- On earnings between £50,271 and £150,000, you pay the higher rate of 40%
- On earnings over £150,000 you pay the additional rate of 45%
The fact that the thresholds will now be fixed and not changing with inflation as average income grows, it is possible that many taxpayers will be pulled into the higher tax category, the treasury call this ‘fiscal drag’. The aim is that by freezing the levels for the next four years they will bring in 1.3 million people to the tax system and create one million higher rate taxpayers. Please click here to view our Budget 2021 report.
Haines Watts
If you have concerns or questions about the personal allowance freeze or any of the above, you are new to personal tax and need help with your tax planning and returns or if you think you are not taking advantage of any opportunities to reduce your personal tax please get in touch on the number below. Our Tax team will be able to discuss your options and ensure we make you aware of all opportunities to reduce your tax liabilities. Get in touch with us now for an initial fact finding discussion on the contact details below.
