The government is upping the personal income tax allowance by £500 to £10,500 from April 2015, chancellor George Osborne announced in his Autumn Statement.
Osborne also promised to introduce an uprating mechanism to ensure transferable tax allowance moved in line with the personal allowance. This follows his plans to introduce a transferable tax allowance for married couples from April 2015.
During his speech Osborne described the rise as 'the highest cash increase ever'. The personal allowance is currently £9,440 and is set to rise to £10,000, from April of next year. It will then increase by the Consumer Prices Index (CPI) in future years, starting from 2015-16.
In 2014-15, the 20% basic rate of income tax will apply to a narrower band of taxable income who earn between £10,000 and £41,865, which means the 40% rate of income tax for higher rate taxpayers will start at £41,866 and above.