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Budget 2017: higher rate tax threshold raised to £46,350

Budget 2017: higher rate tax threshold raised to £46,350

The chancellor has announced increases in tax thresholds in his Budget. 

As part of the package the personal allowance will rise to £11,850 from April, from the current £11,500. 

Philip Hammond has previously pledged to raise the personal income tax threshold to £12,500 by 2020, while the 40% higher tax rate is due to increase to £50,000. 

Meanwhile, the higher rate threshold will rise to £46,350 starting from April next year. 

As a result of the changes, a basic rate tax payer will be £1,075 a year better off compared to 2010. 

However, Kate Smith, head of pensions at Aegon, said the tax band hikes are somthing of a double-edged sword for pension investors.

'Increasing the higher rate tax threshold to £46,350 means more people should pay less income tax from next April. Some will move out of the higher rate tax bracket and become basic rate tax payers,' she said.

'This affects pension saving as individuals receive tax relief, or a government top-up, on their own contributions, based on their highest marginal income tax rate of 20%, 40% or 45%.  Moving more people into the basic rate tax bracket means the government top-up is halved.' 

Smith also highlighted that the changes mean that UK and Scottish income tax rates are diverging, with the higher rate band £43,000 north of the border.

'This means that some people resident in Scotland and the rest of the UK, but earning the same amount, will not only pay different levels of income tax, but also benefit from different pension tax relief on their contributions,' she added.

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