Budget 2011 Income Tax

Budget 2011 Income Tax.

Increase in income tax personal allowance for 2012/13

Legislation will be introduced in Finance Bill 2012 to set the personal allowance for those aged under 65 at £8,105 and the basic rate limit at £34,370.  All other income tax, personal allowances and limits that are subject to indexation will be increased in line with the retail prices index.

The reduction to the basic rate limit means the higher rate threshold (the sum of the personal allowance and basic rate limit) is not affected by this announcement.  This ensures no additional higher rate taxpayers are created, and that most basic and higher rate taxpayers will gain from the increase in personal allowances by the same amount.

In 2011/12, whilst there is an increase in the personal allowance, there will be more higher rate taxpayers.  The Government have therefore deliberately avoided this problem in 2012/13 by making a sufficient reduction in the basic rate limit

The (under age 65) personal allowance and basic rate limit for this tax year and the next 2 tax years will therefore be as follows:-
Personal allowance for those aged under 65

• 2010-11 - £6,475 and Basic rate limit £37,400 meaning if you earn above £43,875 you pay Higher Rate Tax
  
• 2011-12 - £7,475 and Basic rate limit £35,000 meaning if you earn above £42,475 you pay Higher Rate Tax
  
• 2012-13 - £8,105 and Basic rate limit £34,370 meaning if you earn above £42,475 you pay Higher Rate Tax
  

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