Personal Income Tax
Tax rates and allowances (Table A)
The Chancellor’s most dramatic ‘rabbit out of the hat’ was the announcement of increases in the Personal Allowance and higher rate threshold to meet a manifesto commitment a year early. For the tax year 2019/20, the main taxfree Personal Allowance rises to £12,500 (up from £11,850), and the basic rate of tax applies – in England, Wales and Northern Ireland – to the next £37,500 of income (up from £34,500). This means that the threshold for 40% tax will be £50,000 for 2019/20 (up from £46,350). These figures will remain the same for 2020/21, after which the intention is to increase them in line with inflation.
The level of income at which the Personal Allowance is withdrawn remains £100,000; the withdrawal of £1 for every £2 of income means that there is an effective marginal rate of tax of 60% in the band of income up to £125,000 in 2019/20, above which the taxpayer will have no Personal Allowance.
The Scottish Parliament has set different tax rates and thresholds for Scottish taxpayers since 2017/18, and the details are yet to be confirmed for 2019/20. From April 2019 the Welsh Government has the power to set a Welsh rate of Income Tax for non-savings, non-dividend income for Welsh taxpayers, but has announced that it will not vary the UK rates.
There were no other significant changes to Income Tax rates and allowances, which are now extremely complicated (see the Table). An individual’s total tax liability on any given amount of income will vary considerably depending on the components of that income (for example, salary, profits, rent, interest, dividends). On a simple salary of £50,000, the Income Tax payable will be £860 less in 2019/20 than in 2018/19. However, the upper limit for 12% National Insurance also increases, so there will be an extra employee’s NIC bill of approximately £340 to offset the tax reduction.