As was widely expected, the Chancellor has announced an increase in the personal tax allowance to £10,500 in 2015-16, but has stopped short of making radical changes to the thresholds for higher rates of tax
In the Budget, George Osborne said that the higher rate threshold will be increased to £41,865 and will subsequently increase by 1% to £42,285 in line with the plans originally announced in the Autumn Statement 2012.
Osborne also said that from 2015-16 married couples and civil partners will be able to transfer £1,050 of their income tax personal allowance to their spouse or civil partner. This amount is set at 10% of the personal allowance and is available to couples where neither partner is a higher or additional rate tax payer.
ACCA said the chancellor had missed the chance to tackle fiscal drag and that even by raising the personal allowance to £10,500 in 2015, more people will be sucked into the 40% tax band.
Chas Roy-Chowdhury, ACCA head of taxation, said: ‘The slight rise in 2015’s threshold to £42,285 won’t exclude the many families and individuals who are now being pulled into that tax bracket. It will still catch too many people. In 1990 just 6% of UK taxpayers paid income tax at 40%.
‘In 2014 it’s 15.8%. Even raising the personal allowance threshold won’t give those affected the breathing space they need. While the chancellor’s moves on pensions and ISA’s are welcomed and clearly make sense, many people won’t have anything to save with.'
There was positive reaction to the increase in the personal allowance to the promised £10,500, a policy driven by the Lib Dems in the coalition.
Alison Hill, personal tax director, at PwC said: 'The rise in personal allowance will provide a little help to a very large number of people. The increase in the 40p rate will give only a little respite to the squeezed middle who have lost child benefit while facing the prospect of interest rate rises and limited wage growth. After all, the childcare subsidy is a credit on money spent, markedly different to a cash landing straight into bank accounts.'
Hill described the £50 increase in the transferability of the personal allowance between married couples as 'unfortunately a non-event, on what was already a non-event. It will make very little difference.'