Personal allowance, savings rates and national insurance limits – all on the up

Patricia Mock, a tax director in the private client services practice at Deloitte comments:

Personal allowance
The increase in personal allowance from £10,000 to £10,600 rather than the expected £10,500 will be welcome. The higher rate threshold will increase to £42,385 rather than the expected £42,285, giving a basic rate tax band of £31,785 in 2015/16 and meaning that higher rate taxpayers receive all the benefit of the additional increase in the personal allowance. 

Overall these changes will save basic rate taxpayers £120 in 2015/16 (rather than the expected £100) and higher rate taxpayers £224 (rather than the expected £184). The increase means 138,000 fewer people will fall into the higher rate band, which is welcome given the increase in numbers falling into that band in recent years.

Those with income of more than £120,000 will actually have a slightly higher tax liability, as they do not receive a personal allowance and the basic rate band of income has been reduced.

Savings rates
The savings rate of tax, which has previously stood at 10% for income of up to £2,880 has been replaced with a 0% rate. This will apply from 2015/16 to a savings income of up to £5,000 (instead of the expected 1% increase). However, this rate will only affect people on low incomes as non-savings income is taxed as the lowest slice of income and does not attract the 10% band. Hence, only those whose non-savings income is less than £15,500 (in 2015/16) will benefit from this change. The main group likely to benefit are pensioners.

National insurance
The upper earnings limit for national insurance for 2015/16 increases to £42,385 in line with the increased higher rate threshold.  The primary threshold has not been increased with the personal allowance and moves from £7,956 to £8,060, remaining some way apart from the personal allowance. So although someone earning £10,600 per year will not pay income tax they will have a national insurance liability of £305.

Withdrawing personal allowances from non-residents
The consultation around withdrawing personal allowances from non-residents is not being taken forward at the moment as this is a complex change to introduce. There will be further consultation but no changes will be introduced before 2017.

Visit our dedicated Autumn Statement website. 

-Ends-

Notes to editors

About Deloitte

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