Personal Allowance to rise by £1,000--I dont understand....

zarazara

in April next year the personal allowance will rise to £7,475, from £6,475. The newspapers are saying that means the average person will be £170 better off. This I dont understand. Surely they will be £1,000 better off? Can some one explain this to me please.
Thankyou

uk1

You can earn £1000 more before paying tax.

CLAPTON

at the moment you can earn 6475 before at tax is payable; after that you pay 20% tax

so if the tax free allowance increases by 1000 (from april 2011) then you will save the 20% tax on the 1,000 i.e. you save 200 per annum
I have no idea why they said it will only be 170

artha

CLAPTON wrote: »

at the moment you can earn 6475 before at tax is payable; after that you pay 20% tax

so if the tax free allowance increases by 1000 (from april 2011) then you will save the 20% tax on the 1,000 i.e. you save 200 per annum
I have no idea why they said it will only be 170

I'm glad I'm not the only one who is confused by that. I was driving and heard it on the radio that it will mean people will be up to 175 better off

zarazara

right, I get it now. Thanks all.

mjm3346

It is around £170 because it is "average person" and takes into account the planned NI increase to give the better off figure, actual income tax paid should drop by £200 for the "average person".

wakeupalarm

Did they say what the over 65/75 rates are going to be?

artha

mjm3346 wrote: »

It is around £170 because it is "average person" and takes into account the planned NI increase to give the better off figure, actual income tax paid should drop by £200 for the "average person".

Yes of course. As I don't pay NI (pension) I should see the extra 200.
What I'm surprised about (or I may have missed it) is that the threshold for 40% tax wasn't reduced at the same time so that higher earners basically stand still whilst low income earners benefit.

Mikeyorks

wakeupalarm wrote: »

Did they say what the over 65/75 rates are going to be?

They're (normally) subject to indexation and won't be announced until later in the year. The £1k increase to the basic rate is exceptional and will not be subject to the indexation. Per Treasury :-

2. Legislation will be introduced to provide for the following income tax and National Insurance Contributions (NICs) changes for 2011-12:

• the personal allowance for those aged under 65 will be increased by

£1,000 to £7,475;

• the basic rate limit will be reduced so that higher rate taxpayers do not benefit from the increase in the personal allowance. The exact figure will be confirmed when September’s Retail Prices Index (RPI) is

known; ...........................................

4. Existing legislation requires the Government to increase personal

allowances and rate limits by the annual percentage increase to the RPI for the year to September preceding the new tax year. The Government will make the Order to set the relevant amounts for
2011-12 after the relevant percentage is published in October 2010.
5. The Government has announced that for 2011-12 it will over-ride the amounts that will be set in the Order for the personal allowance for those aged under 65 and the basic rate limit. Decisions on other allowances will be made at the appropriate time. The exact amounts of the basic rate limit for 2011-12 will not be known until publication of the RPI for September.

Mikeyorks

artha wrote: »

What I'm surprised about (or I may have missed it) is that the threshold for 40% tax wasn't reduced at the same time so that higher earners basically stand still whilst low income earners benefit.

Covered at 2nd bullet of para 2 above?

artha

Mikeyorks wrote: »

Covered at 2nd bullet of para 2 above?

yes thanks. I saw parts of the speech but haven't caught up with the detail. The BBC site at the time I looked at it didn't mention it.