Personal allowance and higher-rate threshold to increase 0.5%
A 0.5% increase to the personal allowance and higher-rate of income tax will be in place from 6 April 2021, according to the Treasury.
Both thresholds will increase in line with the Consumer Prices Index (CPI) rate of inflation figure for September 2020, which was 0.5%.
This means the personal allowance will increase from £12,500 to £12,570 and be in effect throughout the UK for 2021/22.
In every UK country except for Scotland, the basic-rate will kick in above £12,570 and apply on income of up to £50,270.
The higher-rate of income tax (40%) will kick in on any slice of income in 2021/22 exceeding £50,270 up to £150,000.
The additional rate (45%) and £150,000 threshold remains unchanged for the eighth consecutive year, going back to the 2013/14 tax year.
The Treasury also confirmed the September 2020 CPI rate of inflation figure will be used to increase the 2021/22 National Insurance limits and thresholds.
Jesse Norman, financial secretary at the Treasury, said:
“The Government will use the September CPI figure (0.5%) as the basis for setting all National Insurance limits and thresholds, and the rates of class 2 and class 3 National Insurance contributions, for 2021/22.”
Norman confirmed this in a recent statement to the House of Commons after last autumn’s budget was postponed.
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