The measure

In the June 2010 Budget, the Government set a long term objective to increase the personal allowance for those aged under 65 to £10,000 and began this process by announcing an increase of £1,000 to £7,475 from 6 April 2011. The Government has continued with this commitment and confirmed that the personal allowance for those aged under 65 will increase by another £630 to £8,105 from 6 April 2012.

Income tax personal allowances for those aged over 65 will continue to increase in line with the retail prices index. It also continues to be withdrawn for all individuals with income over £100,000 at a tapering rate.

To prevent higher rate taxpayers from benefitting from the increased personal allowance, there will also be a reduction in the basic rate limit to £34,370 for 2012/13.

As previously announced for 2011/12, the 20% basic rate will continue to apply to taxable income up to £35,000 and the 40% higher rate to taxable income above £35,000. The 50% additional rate will apply to taxable income above £150,000.

Who will be affected?

Individuals on low and middle incomes will be affected by the increases to the personal allowance.

When?

The increase in the personal allowance for those aged under 65 to £8,105 will be effective from April 2012.