Huge numbers of people are already being dragged into paying more tax
Significant reforms to the tax system could relieve the financial pressure on millions of households. The development follows the announcement of several important tax changes set to take effect within the next 12 months.
Campaigners have submitted a petition to Parliament demanding the personal allowance be raised to £20,000. This allowance determines how much you can earn annually before being liable for income tax. Currently set at £12,570, Labour has confirmed this threshold will remain frozen until at least April 2031. Should it rise to £20,000, a basic rate taxpayer utilising the full allowance would save £1,486 annually. The petition states: “The personal allowance has been frozen while living costs have risen, meaning workers pay more tax in real terms.
“Increasing it to £20,000 would put more money into millions of workers’ pockets, helping with rising bills and supporting low and middle earners. The personal allowance has been frozen since 2021 while living costs have risen sharply, meaning workers are paying more tax in real terms.
“As wages increase slightly to keep up with inflation, more people are pulled into paying tax or higher rates.” The basic rate of income tax currently stands at 20 per cent.
Higher tax rates
In England and Wales, the higher rate applies to earnings above £50,270, while the additional rate of 40 per cent kicks in on your income exceeding £125,140. Another important rule regarding the personal allowance is that once your earnings exceed £100,000, you begin to forfeit your personal allowance.
For every £2 earned above the £100,000 mark, you lose £1 of personal allowance. This means your allowance disappears entirely once your income hits £125,140.
The petition further argues: “Increasing the threshold to £20,000 would put more money into millions of workers’ pockets, ease financial pressure, and support low and middle earners during a cost of living crisis.” Should the petition secure 10,000 signatures, the Government will provide a response.
If 100,000 people add their names, the matter will be considered for Parliamentary debate. This isn’t the first occasion the public has campaigned for the personal allowance to be raised.
A separate petition advocating for an increase to £18,000 has already garnered over 36,000 signatures. Another widely-backed petition similarly is demanding an increase to £20,000, attracting more than 94,000 supporters to date.
Key tax changes confirmed
A number of significant tax changes are approaching that taxpayers should be mindful of. The rates applied to your taxable interest income are set to rise from April 2027, climbing by two percentage points across each tax bracket. The existing rates mirror the standard income tax rates.
Following the changes, the rate for basic rate taxpayers will jump to 22 per cent, for higher rate taxpayers to 42 per cent, and for additional rate taxpayers to 47 per cent. The annual ISA allowance is also set to be reduced.
Currently, savers can deposit up to £20,000 each tax year into these tax-free accounts, split however they wish between stocks and shares or cash accounts. However, under the new system, only £12,000 of this allowance will be available for deposits into cash accounts.
The remaining £8,000 will be exclusively reserved for investment-based account deposits. Another significant tax shift from 2027 is that the remit of inheritance tax will be broadened, with most unused pension funds becoming subject to the 40 per cent levy.
