Thu, 3 Jun 2010

Increase to personal allowance next year

The Liberal Democrats and Conservatives plan to take significant numbers of taxpayers out of income tax from next year, but are constrained by the deficit from achieving a starting threshold of £10,000, as promised in the Liberal Democrat manifesto.

The parties, in their coalition agreement, stated: ‘We agree to announce in the first Budget a substantial increase in the personal allowance from April 2011, with the benefits focused on those with lower and middle incomes. We also agree to a longer term policy objective of further increasing the personal allowance to £10,000.’

Regarding the planned 1% rise in National Insurance Contributions, scheduled by the last Government for April 2011, only the employees’ element would be implemented, not the employers’. This was publicly denounced as a ‘tax on jobs’, featuring prominently in the party leaders’ television debates prior to last month’s General Election.

Advice group Towry Law, quoted in the FT, said there are likely to be changes to the basic-rate tax threshold so that higher-rate taxpayers do not benefit.

Deloitte calculated that those earning up to £90,000 will see a saving. But higher earners are unlikely to pay less, as the Labour measure that withdraws the personal allowance for those earning £112,950 or more will be retained.