MILLIONS of workers are set to get a pay rise after the Chancellor today announced that a freeze on income tax thresholds will end.
The income tax threshold, known as the personal allowance, has remained at £12,570 since 2021.
You currently pay no income tax if you earn £12,570 or less[/caption]
Only those whose earnings breach this level are liable to pay income tax.
Separate higher and additional rate income tax thresholds exist for those with substantial earnings.
Income tax thresholds have been frozen since 2021 and these freezes had been due to end in 2028.
There were fears that the government would extend the freeze on income tax thresholds until 2030.
However, Chancellor Rachel Reeves has now confirmed that this will not happen.
What is the personal allowance?
THE personal allowance is the amount you can earn each year tax-free.
In the current tax year – which runs from April 6 2024 to April 5 2025 – the figure is £12,570.
Any earnings above this threshold are taxed at different rates, depending on the income bracket.
However, this amount may be larger if you claim certain allowances, including a blind person’s allowance, marriage allowance and child tax credit.
Income tax also applies to money you make outside your job, not just your earnings.
But there are also some tax-free allowances on top of the personal allowance for these other sources of income.
If you are self-employed, you don’t have to pay tax on savings interest, dividends and the first £1,000 of income.
