Tax Tip

The Chancellor, Alistair Darling has announced that the basic rate personal tax allowance is to rise by £600 to £6,035. The move has been designed to compensate taxpayers who have been hit by the scrapping of the 10p income tax starting rate.
As a result of the change:

1. Basic rate taxpayers will save £120 annually.
2. The higher rate threshold will be reduced by £1,200 from £36,000 to £34,800. The higher rate band will now start at £40,835.

The increase in the allowance is to be backdated to 6 April. Basic rate taxpayers will receive a £60 lump sum in September to be followed by £10 a month for the rest of the year.

The Chancellor also said that the allowance for higher rate taxpayers is to change.

The move, the government estimates, will compensate 4.2 million households with as much as or more than they forfeited when the 10p rate was abolished.

The remaining 1.1 million households will see their loss at least halved. In other words, 80 per cent of households are fully compensated, with the remaining 20 per cent compensated by at least half. And in addition 600,000 people on low incomes will be taken out of income tax altogether.