Budget 2018: personal taxes
Income tax boost as thresholds raised a year early
The Chancellor is bringing his plans forward
Millions of workers will benefit from a decision to bring forward increase in personal tax allowances by one year.
Mr Hammond said he was under pressure to sacrifice a manifesto pledge to raise the basic allowance to £12,500 and the higher rate to £50,000 in order to finance a £20bn boost to the NHS.
He had planned to raise the threshold in two stages with the basic allowance currently £11,580 and the higher rate £46,351 in England.
Instead he brought the whole change forward by a year to April 2019.
The change will mean the basic rate taxpayer will pay £1,205 less tax, amount to a £130 a year tax saving. A higher rate taxpayer will have an average gain of £387.
It also puts pressure on the Scottish government which has already decided not to pass on the last increase in the threshold for higher rate payers.
“I didn’t come into politics to put taxes up,” said Mr Hammond. “Austerity is coming to an end but discipline will remain.”
However, Les Cameron, tax expert at Prudential, said: The bringing forward of the £12,500 personal allowance and £50,000 higher rate threshold will be welcome to those on lower incomes but we mustn’t forget that increasing personal allowances are bad news for higher earners.
“Those with incomes over £100,000 will see an effective tax rate of 60% on £25,000 of their incomes.”
He said the increase in high-rate tax thresholds means more people qualify for higher rate tax relief on pensions.
“The acceleration of the higher rate threshold means more people qualifying for higher rate tax relief on pensions – £100 of pension will be costing them £60 instead of £80.”
Moira Kelly, chair of the Chartered Institute of Taxation’s Scottish Technical Committee, said: “The Chancellor’s decision to increase both the personal allowance and higher rate income tax threshold may be good news for taxpayers, but it could be bad news for Derek Mackay as he tries to manage the Scottish budget.
“Today’s announcements highlight the practical difficulties of having control over some – but not all – aspects of the income tax regime.
“Because the Scottish Government has no control over the level at which the personal allowance is set, it means that thousands of people who paid Scottish income tax this year will be taken out of the income tax system altogether, resulting in a loss of revenues that would otherwise have gone directly to Holyrood.
“With a median income of £24,000 per year in Scotland and only 2.5 million taxpayers, losing tax contributions from several thousand individuals can have a significant impact on the Scottish budget.
“The Scottish Government does, however, have control over rates and bands, including the power to set a higher rate threshold for Scottish taxpayers.
“However, it is unlikely that they will follow the UK Government’s lead in increasing the higher rate threshold to £50,000 from next April, highlighting a growing gulf between Scottish and English taxpayers.
“For those who are able to – such as self-employed business owners – this is likely to increase attractiveness of reorganising their tax arrangements to opt out of Scottish income tax and into UK-wide corporation tax in order to reduce their liabilities”.