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Budget 2014: 12 predictions

by Michelle McGagh on Mar 17, 2014 at 09:10

Income tax and the personal allowance

The coalition has said it wants to increase the allowance to £10,000 for the 2014/15 tax year. However, it is under pressure to increase it further, possibly to £10,500.

Tina Riches, national tax partner at Smith & Williamson, said tax giveaways were costly – a £100 increase in the personal allowance for 30 million working people would lose the Treasury £3 billion.

She noted that while there are calls to increase not only the personal allowance but also the 40% higher rate income tax threshold ‘in reality [the chancellor] has little scope to do either’.

Riches said ‘there are growing calls from Osborne's colleagues to support the increasingly squeezed middle’ by raising the 40% threshold from £41,865 as of April 2014 as ‘the threshold has been systematically reduced, especially in real terms, in recent years to compensate for the increase in personal allowance’.

Some 4.7 million people pay 40% tax on some of their income, up from just two million in 1994/95.

Hargreaves Lansdown predicted the 40% rate would be frozen to pay for a personal allowance rise, meaning five million people would be dragged into the 40% tax band.

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