MILLIONS of workers will get a pay boost next year as the personal allowance rises from £12,500 to £12,570 in April.
The personal allowance is the amount you can earn without paying any tax.
From April 2021, it’ll rise based on the Consumer Prices Index (CPI) inflation for September, which came in at 0.5%.
The £70 increase, confirmed to The Sun by The Treasury, was hidden in the Spending Review small print.
It means basic-rate taxpayers (those earning between £12,501 and £50,000) will earn an extra £14 a year.
Meanwhile, the threshold for higher-rate taxpayers will increase from £50,001 to £50,270, the Treasury said.
It means they’ll get a maximum pay boost of £68 a year, the Low Incomes Tax Reforms Group (LITRG) has calculated.
What is the personal allowance?
THE personal allowance is an amount you can earn each year tax-free.
In the current tax year running from 6 April 2020 to 5 April 2021, that amount is £12,500.
You then pay between 20%-45% income tax depending on how much you earn.
- Low earners: If you earn £12,500 or less, you pay no income tax
- Basic rate: If you earn £12,501 to £50,000, you pay 20% tax
- Higher rate: If you earn £50,001 to £150,000, you pay 40% tax
- Additional rate: If you earn £150,000 or more, you pay 45% tax
Just keep in mind your personal allowance might be different if you’re entitled to certain allowances or earn a lot of money.
The marriage allowance is a tax break where one partner in a married couple can transfer some of their unused personal allowance to another.
And people with sight issues can get the blind person’s allowance which increases this tax-free amount.
And anyone who earns over £125,000 doesn’t get any tax-free personal allowance – they will pay income tax on everything they earn.
If you already earn below £12,500 a year, you won’t benefit from the personal allowance increase.
Meanwhile, if you currently earn between £12,500 and £12,750, you won’t pay any tax at all from April onwards.
However, those on the lowest incomes could still lose out as workers on Universal Credit are likely to see their benefit payments fall due the rise.
Joanne Walker, LITRG’s technical officer, told The Sun: “Those with incomes above £12,500 who are receiving Universal Credit will most likely see a reduction in their benefit.
“This is because Universal Credit, like other means tested benefits, is based on net income (after tax and national insurance have been deducted).
“As the amount of tax they pay reduces, their universal credit award also reduces.
“Instead of gaining £14 a year from the increased personal allowance, they will only gain overall by around £5 as their universal credit will be reduced by around £9.”
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In the Spending Review last week, Rishi Sunak announced that the national living wage will rise to £8.91.
The Chancellor also said NHS staff will get a pay rise but 1.3million public sector workers face a pay freeze.
The announcements come after reports that Brits could be hit by tax hikes to raise £20billion a year to cover coronavirus debt.