In his Budget speech, Chancellor George Osborne announced a much-trailed rise in the higher rate threshold for 40% rate taxpayers while the basic tax-free allowance will also rise in 2017
The threshold for higher rate tax is be raised from the current £42,385 to £45,000 from April 2017, a move which Osborne said would take 500,000 people out of the higher rate tax band altogether.
The move merely reverts higher rate taxpayers to a slightly better position than they would have been had the higher rate allowance moved in line with inflation.
‘Increases to the personal allowance and basic rate tax band to £45,000 is welcomed, but remember it was £43,875 in 2009/10, says Nimesh Shah, partner at Blick Rothenberg LLP.
Building on the measure promoted under the coalition government to raise the basic rate tax-free allowance and remove more low paid workers from income tax, the personal allowance is to be increased to £11,500 from the current £11,000 with effect from April 2017.
At the same time, the government pre-announced a move to support low paid savers with a pledge to pay a premium at 50% of total savings at the end of two years of saving, effectively meaning that savings of £500 over two years would be boosted by a £250 government subsidy.